FX forward margin is a margin requirement on the interest rate risk inherent in FX forwards and FX swaps.
The interest rate margin requirement is applied on FX forwards and FX swaps in addition to the standard margin requirement applied to FX spot instruments on the notional exposure.
The calculation has the following characteristics:
- Interest rate margin requirement is calculated per currency pair
- The interest rate differential is shifted by 1% and then scaled by time to maturity
- All currency pairs use the same shift of 1%
- Netting across value dates in currency pair
Trade assumptions:
- 1M EURUSD forward with value date in 3 months.
- Spot price = 1.10998
- Forward price = 1.1120
1M x 1.1120 x 3/12 x 1% = 2,700 USD
2,700 USD is applied in addition to the standard margin requirement. Assuming that is 5% in EURUSD:
(1M EUR x 5% x 1.10998) + 2,700 USD = 58,199 USD
Do refer to your Trading Conditions for the margin rates. Interest Rate Margin Requirement will not be applicable if it's not shown in your Trading Conditions.