Margin

Margin is one of trading’s key concepts. It is the money you need to put down in order to open leveraged trades. Margin and leverage are related to each other. Basically, the leverage to margin ratio specifies the amount of margin you need to have in your account in order to trade.

Different regions and asset classes have different margin rates.

Leverage gives full exposure to a given market for a small percentage of the normal capital required. When a transaction opens, the margin value will be required. It will also be held as collateral maintained until the relevant transaction has been closed or terminated. Margin payments are dependent on the CFD’s leverage ratio, the transaction’s contract value, and the underlying financial instrument.

Example

If you are trading WTI Crude Oil with a leverage ratio of 10:1 – equivalent to a margin rate of 10% as per the maximum leverage allowed for retail clients in countries covered by ESMA – it means you can control a trade with a notional value of $10,000 with only $1,000 of margin.

The minimum level required for maintaining positions is 50%. For example, in the above scenario, once opening the trade you would need to maintain at least $500 of available funds in your account to satisfy the margin requirements. If you fail to satisfy this threshold, we will close all your opening positions beginning with those that are least profitable.

How to calculate margin

CFD Oil example

  • You buy one lot (100 barrels) of WTI @ $40
  • Margin required is 10% (leverage 10:1)
  • Your exposure is 100 x $40 = $4,000
  • Initial margin to open the position is 10% of $4,000 = $40

Leverage and Margin

Leverage is often expressed in percentage terms. When this is the case, it is referred to as the margin requirement. For example a leverage of 1:30 is a margin requirement of 3.33%.

Initial/Used Margin

Initial margin is a percentage of the total value of a position taken as collateral to open the CFD or spread betting position.

Required Margin

This is the amount you should have when opening a position. Required margin includes the cost that occurs due to the spread, as well as the initial/used margin.

Free Margin

The sum of funds available to use for new positions as the initial margin is called free margin. Free margin is calculated by subtracting the margin allocated to current positions from your current equity.

Margin Call

If a trade moves against you and your available funds cannot cover margin requirements, a margin call occurs.

Maintenance Margin

The minimum equity required in order to keep your positions open is referred to as maintenance margin. If your equity drops below the minimum required, the margin close out level will be met. Your current positions will then start liquidating without receiving any notice from us. 50% is the default margin close out.

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