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Definition

The term “Margin” corresponds to the necessary funds freely available in a trading account for the purpose of opening a new position. This amount will be set aside from your trading account to serve the purpose of a security in the event of price fluctuation.

Calculation

Currencies

The basic formula for calculating your margin is the following:

Number of Contract(s) * Position Size * Price / Leverage = Margin

A standard contract corresponds to a position size of 100,000 units. The level of your leverage depends on your account type. In the example a leverage of 100 was used. The number of standard contracts multiplied by $100,000 and the current exchange rate divided by your leverage gives the required margin.

Example
You want to open one standard contract with a leverage of 100 with the currency pair EUR/USD.

  1. Your margin requirement will look like this: 1 * $100.000 * $1.0975 / 100 = $1097.50
  2. A higher leverage decreases your margin as seen in the example: 1 * $100.000 * $1.0975 / 500 = $219.50
  3. However, more contacts raise it. 5 * $100.000 * $1,0975 / 100 = $5487.50

Commodities

The basic formula for calculating your variable margin is the following:

Number of Contract(s) * Position Size * Price / Leverage = Margin

The majority of CFDs on commodities require a fixed margin, only in a few cases is the margin calculated variably as with currency pairs. A fixed margin is not dependent on the current price of the asset, only on the number of traded contracts.

Example
Gold has a position size of 100 Troy ounces, as such, your margin requirement is: 1 x 100 Troy ounces x $1075 / 100 = $1075

Indices

All CFDs on Indicies are subject to a fixed margin per contract. The amount of your margin is determined solely by the number of contracts traded. The exact margins can be found HERE.

Stocks

For CFDs on stocks, margins are based on the number of contracts and are calculated as a percentage of the market value. The basic formula for calculating your margin is the following:

Number of Contract(s) x Position Size x Price x Margin Requirement = Margin

Where the term margin requirement refers to a percentage value dependent on the asset and number of standard contracts traded. An exact list of all margin requirements for CFDs on stocks can be found HERE.

Example
With a standard broker, you would have to invest $11,300 for 100 shares of Apple stock, currently trading at $113. A CFD requires a margin of only the following, with the corresponding margin requirement for Apple stocks of 10%: 1 x 100 x $113 x 10% = $1,130

Margin Call

Definition

The term “margin call” refers to situations when the equity in your account is below a certain threshold and the company’s execution venue issues a margin call. A margin call requires you to either close parts of your open positions or increase your equity by depositing additional funds. Doing neither any of the aforementioned, might result in an automated closure of your open positions.

50% Margin Call

Once your account balance is only 50% of the margin, you will receive a notification that your position is in danger of being closed automatically.

Example You have a starting account balance of $10.000 and decided to open 5 standard contracts (Long) with a leverage of 100 for the currency pairs EUR/USD. The margin requirement at the current asking price of $1.10 is $5,500.

Your account now shows four different values:

  • Margin $5,500
  • Available Capital $4,500
  • Profits & Loss $0
  • Account Balance $10,000

Account Balance = Margin + Available Capital

Because of this formula, a price movement adverse to your open position will first reduce your Available Capital and thus your account balance. You will receive a margin call once your account balance falls to 50% of your margin requirement. In this example $2,750 (50% of $5,500). Your P&L now shows a loss of $7,250 as the EUR/USD is currently priced at $1.0855. Profit & Loss = 5 x 100,000 x (1.0855 – 1.10) = -$7,250

20% Closing of the Position

Following the same calculation, when your account balance only covers 20% of the margin, your position will be automatically closed. In our example, once your account balance reaches $1,100, your position would be automatically closed. You would have an actual loss of $8,900 when the EUR/USD exchange rate reaches $1.0822.

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