Limited Risk Trading: Forex
When you trade an FX contract with Limited Risk, you place a Guaranteed Stop and we guarantee to close your position at exactly your chosen level should the market move against you.
For Limited Risk trades a charge is added to your opening price, in effect an insurance premium for risk protection. The Limited Risk premium for a major FX pair is fixed at just 3 pips. All contract sizes are set out in the Contract Details.
The margin requirement for a Limited Risk FX trade is equal to the amount which would be lost if the Stop were triggered, although you may also be asked to cover interest adjustments.
Example: Selling AUD/USD with Limited Risk
You think the Australian dollar is due to fall, but you don't want to be caught by a sudden market move.
Opening the position
On 1 March 2009 our quote is 0.6333/0.6334 and you decide to sell 1 contract (the equivalent of A$100,000) on a Limited Risk basis. With Limited Risk transactions, a premium is paid when the position is opened. So the position is opened at 0.6333 (the bid price) minus 3 (the Limited Risk premium) = 0.6330.
Placing the Guaranteed Stop
You decide to put your Guaranteed Stop at 0.6500. So the most you can lose on the position (excluding interest adjustments)is:
Maximum possible loss (excluding interest adjustments)
| Stop level | A$100,000 (1 contract) x 0.6500 = US$65,000 |
| Opening level | A$100,000 (1 contract) x 0.6330 = US$63,300 |
Maximum possible loss (excluding interest adjustments) US$1,700
Interest adjustments
Interest adjustments are applied to Limited Risk positions in exactly the same way as to our standard FX positions.
Closing the position
On 3 March 2009 AUD/USD has risen to 0.6462/6463. You think the Australian dollar may rise higher and close your position by buying one contract at 0.6463, the offer price.
Your gross loss on the trade is calculated as follows:
Gross loss on trade
| Closing transaction | A$100,000 (1 contract) x 0.6463 = US$64,630 |
| Opening transaction | A$100,000 (1 contract) x 0.6330 = US$63,300 |
Gross loss on trade: US$1,330
To calculate the net loss, you also have to include any daily interest adjustments. Please see our Product Disclosure Statement for an example.