Margin and leverage in trading FAQs
- What is margin?
- What is leverage?
- What is the margin level for each market?
- Margin requirements for large trade sizes
- Orders aware margining
- Margins for hedging
- What is a margin close out?
- Margin close out levels
- How do I change my CFD trading account leverage or margin?
- Can my trading account go negative?
- Chat to our Client Management
- Can't find what you're looking for?
What is margin?
Margin is the amount of money you need to deposit with us to place a trade and maintain that position.
You also need to ensure that, as well as having enough funds to cover your margin, you also have enough ‘available to trade’ to cover any commission (if applicable) and/or other charges, including the spread and financing. Margin is not a fee; it is the safety net we require you to hold to cover potential losses. It is withheld from your trading account and freed up when the position is closed.
What is leverage?
Leverage means being able to buy or sell a greater amount of a financial asset than the funds you use to open your position. It allows traders to gain a large exposure to the financial markets for a relatively small initial deposit. Remember that with greater exposure comes greater trading risk. The higher the leverage, the faster profits can be made, but also the faster your initial funds can be lost.
Learn more about margin and leverage.
What is the margin level for each market?
Our margin requirements differ according to market, asset class and position size. You can find out the specific margin of each instrument in the market information/Market 360 section on your platform.
To calculate the amount of funds required to cover the margin requirement when you open a CFD position, simply multiply the total notional value of your trade (number of contracts traded X price of instrument) by its margin factor.
Learn more about how margin and leverage work in CFD trading.
With City Index's trading platforms, you can calculate your margin before placing a trade through the trading platform's margin calculator, monitor each position's margin requirement or review your trading account's total margin.
Margin requirements for large trade sizes
The larger the trade size, the higher the risk level associated with the trade. Therefore, we may increase our margin requirements for larger size trades or any additional trades in that instrument. To do this, we increase the size of the margin requirement at specific levels, known as 'step margin levels'.
For example, in Company ABC:
If you were to open a position on company ABC by buying 1000 CFDs, your margin requirement would be 20%. If you then place a trade for an additional 1000 CFDs in the same market, the extra 1000 would now be subject to the 25% margin requirement.
Step margins are only present on CFD markets.
Orders aware margining
For Pro trading account holders, some CFD markets benefit from orders aware margining, which means that placing a stop loss order on an open position will reduce the margin required to maintain that position. Information on whether a market includes orders aware margining can be found within the market information/Market 360.
This feature can only be utilised on the first initial step margin.
Ordinary stops can be subject to slippage (the difference between the price of the market after the stop triggering, to the stop level).
Margins for hedging
Hedging is where a client holds a long and a short trade in the same asset. Margins for this are set to the 'longest leg', meaning you will be charged margin for the longer portion of the hedge trade, and nothing for the shorter leg.
For example, say you are trading CFDs and have two open Wall Street positions, originally selling a quantity of 10 and then buying a quantity of 5. In this case, you would only be charged margin for the original, larger side of the trade, the Wall Street short 10 position. Assuming the margin for selling 10 Wall Street CFDs is $2,800 and the margin for buying 5 Wall Street CFDs is $1,400, you would only need to provide enough margin to cover the original, larger sell position for both trades in this market.
What is a margin close out?
If your margin level is at, or below the margin close out (MCO) level, we are required to close any or all your open positions as quickly as possible; this is to protect you from potentially incurring further losses and having a negative balance on your account.
It is your responsibility to always monitor your trading accounts and maintain your margin requirements, and not rely on us to close out your open positions should they be nearing, or exceed, the margin closeout levels.
The Margin Indicator on the trading platform makes monitoring your margin level easy.
The calculation for the margin indicator is determined by the Net Equity in your trading account divided by your Total Margin Requirement, multiplied by 100. To improve your margin level, you can do one or more of the following:
- Deposit funds
- Close or part close positions
- Add an order aware stop loss (Professional traders only)
Margin close out levels
Margin close out levels vary by trading account type. Your MCO will be 50% of your total margin requirement for standard CFD trading accounts, while MetaTrader4 will be 100%. If you drop below your margin requirements, your largest losing position will be closed first, followed by the next largest, and so on until your margin level moves back above the required minimum amount. This is in order to protect you from incurring further losses.
Read more about managing risk in CFD trading.
Does leverage affect margin?
Yes, leverage will affect your margin. Essentially, the higher leverage you employ the lower the margin requirement for any given market.
For example, if you want to open a trade worth $100 with 2x leverage, you need to deposit (100/2) 50% of your position’s full size as margin, or $50. If you were to trade with 5x leverage instead, then you’d only need to deposit (100/5) $20.
How do I change my CFD trading account leverage or margin?
At City Index, regulations require us to offer specific margin requirements on each individual market, so you can’t change the leverage on your CFD trading account.
Accredited Investors will be subject to minimum 2% margin on FX trades, as opposed to 5% for Retail clients.
Can my trading account go negative?
City Index standard counts feature negative balance protection, which means your account balance can never go negative. We’ll also aim to close positions on your behalf if your margin drops below 50% of the total requirement.
If you upgrade to a Pro account, then your losses will be able to exceed deposits – which means your account can go negative.
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