What is a margin deposit?
A margin deposit is the initial amount of money a trader needs to put down in order to open a leveraged trading position. It can also be known as the initial margin, deposit margin or just as the deposit.
Leveraged products, such as CFDs, enable traders to open a position with just a fraction of the capital required. Although this has the potential to magnify your profits, it can also magnify your losses and losses can exceed deposits.
The margin deposit is usually stated as a percentage of the full value of the trade – it is determined by leveraged provider’s margin system. The amount needed as a deposit margin depends on the derivative being used and the market being traded. Markets with higher volatility or larger positions may require a higher deposit margin.
A margin deposit is one of two main types of margin needed to hold an open leveraged position.
The other is called maintenance margin. This is the term used to describe the additional funds that might be needed to cover any running losses or keep a position open.