fx forward leverage

kremer · July 6th, 2012, 5:33 am

Hi,What is the leverage ratio on a OTC fx forward contract(lets say buy 1million usd and pay 1.85 million TRY)? As I do not pay anything I guess it is infinite or do I miss something entirely? Thanks in advance,

acastaldo · July 6th, 2012, 7:16 am

QuoteAs I do not pay anything I guess [leverage] is infiniteMaybe, in theory. But more likely the bank will require you to put up a small amount as a 'guarantee' or 'collateral' before they enter into a forward agreement with you.

nike61062x · July 6th, 2012, 12:19 pm

You will have to post collateral against the MTM of the position

kremer · July 6th, 2012, 1:39 pm

even MTM=0, counterparty(in this case the Bank) requires a collateral.Then, how much(what percentage) of the MTM should be sent to the bank as collateral? Is this percentage(amount) differs from one bank to another?

giladr · July 11th, 2012, 8:46 pm

It's usually around 1-2% margin + MTM.Some banks will obviously be more aggressive and some careless... it depends on how big you are, how well the bank knows you, what positions you take, what VaR, etc... but usually 1-2 pct is a good bet.

skullx · August 3rd, 2012, 6:15 am

QuoteOriginally posted by: giladrIt's usually around 1-2% margin + MTM.It's for major currencies. For emerging it's usually more.