What is the investing on margin?

What is the investing on margin?

  • CFDs are a leveraged product. This means you only need a fraction of the nominal value to obtain the same exposure in the market.
  • When an operation is made, a certain outlay is needed to open the position.
  • The margin is not a cost; it is an amount of money frozen while your position is open and returned once it is closed.
  • Your margin level is the deposit required to maintain an open transaction in your account.
  • For example, with leverage of 1:200, you will need 0.5% of the nominal value for the margin of the operation.

What is the benefit of the margin?

Margin trading – also known as leveraged trading or leverage – allows you to obtain a large market exposure with a relatively small deposit. If the market moves in your favour, your return may be higher than in traditional trading.

The margin operation gives you the possibility of obtaining a greater profit from your capital by committing only a fraction of the operation value as an initial deposit. You can take larger positions than you could abide by making physical purchases. This means that your return would be much higher in proportion to your initial investment.

However, keep in mind that just as your profits grow, so do your potential losses. You can lose more than initially deposited if you do not carry out proper risk management.

Margin – as an example

Let’s say you would like to open a position on EURUSD, and the leverage of your account is 1:100. That means that only 1% of the contract’s total value is required as a margin. The xStation trading calculator instantly determines the cost of margin needed, according to the volume used and the leverage of the instrument traded.

In the example, a lot of EURUSD requires approximately 415 GBP.

Margin levels and initial deposits required

To open and maintain your positions, you must always have sufficient resources to cover the margin requirements. The free margin represents the capital available for new operations and covers negative price movements in your open positions. Usually, it operates at a margin level of 30%. The limit level is calculated by dividing your assets by the required margin and multiplying by 100%.

You will find an indicator called “margin level” in trading platforms. When this indicator falls from the 30% level, the open position with the highest loss will be automatically closed. This system allows us to help you avoid incurring greater losses. To prevent your work from closing due to a stop out, you will need your margin level to always be higher than 30% by depositing new funds, which increases your wealth.

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