Margin trading gives you full exposure to a market using only a fraction of the capital you’d normally need. Margin is the amount of money you need to open a position, defined by the margin rate. For example: if you were to buy $1000 of shares through a traditional broker, you’d need to pay the full $1000 upfront to own them (plus the associated broker charges). As a derivative is a leveraged product, you don’t need to pay the full value of your exposure in order to deal. Instead, you’ll only need to put up a fraction of your total exposure to open your position.
There are two types of margin to consider:
The initial margin is the minimum amount you’ll need to put up to open a position. It is sometimes called the deposit margin, or just the deposit.
The maintenance margin, also known as variation margin, is extra money that we might need to request from you if your position moves against you. Its purpose is to ensure you have enough money in your account to fund the present value of the position at all times – covering any running losses.
Things to remember
- You should ensure that you have enough funds in your account to cover both margin and losses. If there isn't, you may be put on margin call.
- You are able to limit your potential losses and reduce your margin requirement by the use of different stops.