Due to the volatile nature of the currency market, entering into a forward contract requires some financial commitment from you in the form of a deposit which is held on account until your final draw down. Deposits are always payable within one business day of entering into a forward contract.
What currency should I pay the deposit in?
You can pay this deposit either in the currency you are selling, in which case we will reduce the amount owed to Equals at the end of the contract, or in the currency you are buying in which case we will return the full deposit to you on successful completion of the contract.
How much deposit will I need to provide?
The percentage and value of the deposit we require you to hold against the contract will be shown on the platform and in your confirmation.
What is an additional deposit?
Occasionally you may be required to pay additional deposits (also called a ‘variation margin’) if there are unfavourable currency movements against the contracts you have with Equals.
For example if your variation margin terms are 3% then every time the market rate moves against your currency pair by 3% we will contact you to request a minimum deposit of 3% to bring your position back to the initial deposit level.
We will then contact you for further deposit for every 3% the exchange rate moves against you. Deposit amounts will be held on account for you and paid out/back if the rate moves back in your favour or on completion of the contract. Any additional deposits must be received within one business day of Equals making the request otherwise the trade is at risk of being closed with any loss incurred being invoiced to the client.
Additional deposits are calculated like follows: (this is an example only and does not reflect a contract rate being offered by Equals)
A client buys 300,000 CHF at the exchange rate of 1.2625 for £237,623.76 GBP on a 4-month forward contract with a required deposit of 10%. The client pays £23,762.38 GBP to hold as a deposit at Equals.
The exchange rate has since moved to 1.3005 [+3%]. The current value (also called mark-to-market) of 300,000 CHF is now £230,680.51 GBP. This would require the payment of an additional deposit. Equals would calculate the additional deposit as follows:
• Decline in value of Forward contract: £6,943.25 GBP
• Additional deposit amount required to meet 3% margin call: £6,943.25 GBP
• Total Deposit held after margin call is met: £23,762.38 GBP + £6,943.25 = £30705.626 GBP