Why is a margin required when buying currency on a Forward basis?
A. A margin is required by the VFX as standard security against currency purchased on a Forward basis. The bank holds on your behalf 10% of the total amount of any Forward Contract and the remaining 90% is paid upon on the maturity date of your Contract. It is important to note that VFX must maintain a 10% margin at all times against your trade to reflect any sudden market movement. VFX may conduct a ?margin call? to maintain your deposit at 10%. Forward margin is also protects VFX against defaults on forward contracts.
