This rule means using more than 40% of the available margin for 1 single trade or multiple trades on the same instrument in the same direction.
Key Terms Explanation:
One-side betting: This refers to a high-risk trading strategy where a large portion of your available margin is used in a single trade or multiple trades on the same instrument in the same direction.
Available Margin: This is the amount of funds you have in your account that can be used to open new positions. It's determined by your account balance, the leverage provided, and the margin requirements of your open positions.
Leverage: Leverage allows you to control a large position with a relatively small amount of capital. A 1:125 leverage means you can control a position worth 125 times your invested capital, and a 1:40 leverage means you can control a position worth 40 times your invested capital.
What are the leverages?
Challenge Phase (both Phases)
FOREX: 1/125
INDICES: 1/20
COMMODITIES: 1/40
Funded Phase
FOREX: 1/40
INDICES: 1/10
COMMODITIES: 1/10
Single Trade or Multiple Trades on Same Instrument in the Same Direction: This means either one large trade or several smaller trades that are all betting the market will move in the same way (either all buying or all selling) on the same financial instrument.
Application of the Rule:
1) $100,000 Accounts with 1:125 Leverage:
Total Trading Power: With 1:125 leverage, your $100,000 can control positions worth up to $12,500,000 ($100,000 * 125).
40% Margin Rule: You cannot use more than 40% of your available margin on a single trade or multiple trades in the same direction on the same instrument. This means you cannot commit more than $5,000,000 ($12,500,000 * 40%) to any one trade or set of trades on the same instrument in the same direction.
Max Lot Size for a Trade: Forex lots are typically 100,000 units of the base currency. To find the max lot size, we calculate the maximum amount you can commit ($5,000,000) and divide it by the value of one lot in your account currency. For simplicity, if we assume you're trading a pair where the base currency is the same as your account currency, the maximum lot size would be 50 lots (since one lot is $100,000 of position value, and you can commit up to $5,000,000).
2) $100,000 Accounts with 1:40 Leverage:
Total Trading Power: With 1:40 leverage, your $100,000 can control positions worth up to $4,000,000 ($100,000 * 40).
40% Margin Rule: You cannot use more than 40% of your available margin on a single trade or multiple trades in the same direction on the same instrument. This means you cannot commit more than $1,600,000 ($4,000,000 * 40%) to any one trade or set of trades on the same instrument in the same direction.
Max Lot Size for a Trade: Using the same logic as above, if one lot is $100,000 of position value, the maximum lot size you could commit to a single trade or multiple trades in the same direction on the same instrument would be 16 lots (since you can commit up to $1,600,000).
This rule does not apply to Crypto instruments.