Introduction to foreign exchange margin business operations

Foreign exchange margin trading is one of the most popular investment methods in the current market and is also considered a promising financial investment method in the industry. Before making foreign exchange investments, we need to first understand the operational process of the foreign exchange margin business.

The operation process of a foreign exchange margin business generally includes two aspects: the transaction operation process and the internal control process.

1: Transaction operation process

According to different operating objects, it can be divided into customer transaction operation processes and transaction leveling operation processes of operating institutions represented by banks. Among them, the customer transaction process includes operations such as opening an account, depositing funds, trading, withdrawing funds, and closing accounts.

At present, domestic investors in foreign exchange margin trading can open trading accounts through foreign exchange brokers and Hong Kong traders in China.

1. Provide relevant information.

Investors need to provide relevant information by filling out the "Account Opening Application Form" provided by foreign exchange operating institutions, which is equivalent to opening a stock account at a securities company. The main content and required materials of the "Account Opening Application Form" for various foreign exchange operating institutions are roughly the same, but there are differences in certain details.

The "Account Opening Application Form" generally includes risk warnings, privacy policy notices, foreign customer notices, foreign exchange customer agreements, and account application forms. The account application represents the part of the form that the customer needs to fill out when opening an account, mainly including basic information, customer signing agreements, etc.

(1) Basic account information Basic account information mainly includes account type (personal account, joint account, company account, etc.), e-mail address, account security issues, basic personal information of the account owner (name, gender, nationality, date of birth, ID card number, marital status, etc.), address, investment experience, education, etc.

(2) Work and financial situation This mainly includes the current employment situation and financial status of the account owner (annual income, net assets, and liquid assets).

(3) Personal information and company account opening information of joint account holders This section is the personal information of the joint account holders and the public information of the company, and for most people, it will not be involved.

(4) Signature section By signing on the signature page, the account holder agrees to sign the document, and it also means that the customer has confirmed that the information provided is complete and accurate.

In addition to the account application form, the account holder also needs to provide proof of identity, proof of address, bank card information, etc.

2. Account opening process

The process of opening accounts for each broker is roughly the same.

Firstly, the customer needs to submit all the necessary documents for opening an account and send them to the foreign exchange broker for verification.

Foreign exchange brokers open customer trading accounts and notify customers of their trading accounts and passwords by email.

Based on the obtained trading account information, the customer utilizes the fund transfer channel provided by the foreign exchange broker to transfer the trading funds from the affiliated fund account to the designated margin trading account at an initial deposit amount not less than the specified amount by the foreign exchange broker;

Customers can use various trading platforms and methods provided by foreign exchange brokers, such as online trading, mobile trading, and telephone ordering, to conduct real-time or listed trading operations such as long or short trading based on the verified transaction funds;

Correspondingly to a deposit, when the customer does not trade or has the need to use funds, the customer can choose to withdraw funds, that is, transfer funds from the margin trading account to the associated fund account. At this point, the customer's transferable account balance not only includes the profit and loss amount after the closing of the trading position but also includes dividends and overnight interest spreads derived from the trading process.

Regardless of whether it is a deposit or withdrawal operation, based on fund security considerations, trading accounts and available fund accounts must be strictly distinguished and used independently.

When a customer stops margin trading, they can choose to close and cancel their margin account. To perform this operation, the customer is required to close all trading positions and first fully discharge the amount in the trading account, i.e., close the account with a zero amount. Its operation is similar to clearing all necessary funds, including principal and interest, when we close an account at the bank.

2、 Internal control process

In foreign exchange margin trading, investors only need to pay a certain amount of margin to trade tens or even hundreds of times, fully reflecting their small and extensive leverage effect, allowing those investors with small amounts of funds to participate in foreign exchange trading in the financial market. But precisely because of this high leverage, it also has a high level of risk. In order to control their business risks, foreign exchange brokers need to rely on powerful system platforms and strict internal operational management to monitor customer trading exposure from reviewing their admission qualifications. By adopting measures such as setting margin warning ratios and mandatory stop loss measures, they can control customer trading operations, avoid risk losses in their fund accounts, and ensure the smooth operation of foreign exchange brokerage business.

1. Set margin warning ratio

Foreign exchange margin ratio=net value/used margin

Among them: Net value=account balance+floating profit and loss

Account balance=Account balance since the last liquidation

Used margin=the total amount of margin held for closing positions

Available margin=net value - used margin

Operation process of foreign exchange margin business

When the investor's margin ratio drops to the margin warning ratio specified by the operating institution, the control system issues a margin increase warning to the customer, notifying them to timely add margin according to trading needs.

2. Mandatory stop-loss

When the customer's margin ratio reaches or is less than the stop loss ratio specified by the foreign exchange broker, the foreign exchange broker shall forcibly close the customer's position based on the content of the agreement signed with the customer, that is, at real-time prices, close the customer's position one by one according to the size of the customer's transaction loss, until the customer's margin adequacy ratio reaches the ratio specified by the foreign exchange broker.

The purpose of the above operations is to remind customers to pay attention to the risk of trading losses and strictly control losses within a certain range.

Of course, the internal operations of operating institutions also include accounting processing processes such as calculating interest on customers' positions after opening, calculating dividends, and balancing and clearing.