Margin of CFD

Let us understand the margin working logic of CFD

What is Initial and Maintenance margin?

Initial and maintenance margin

Initial margin and maintenance margin are designed to protect you against adverse market conditions, by creating a buffer between your trading capacity and margin close-out level.

Initial margin: a pre-trade margin check on order placement, i.e. on opening a new position there must be sufficient margin collateral available on your account to meet the initial margin requirement for the entire margin portfolio.

Maintenance margin: a continuous margin check, i.e. the minimum amount of cash or approved margin collateral that must be maintained on your account to hold an open position(s). Maintenance margin is used to calculate the margin utilisation, and a close-out will occur as soon as you do not meet the maintenance margin requirement.

How will the initial margin prevent trading up to 100% margin utilisation?

When you place a new order, existing open positions and orders are included in the calculation of the initial margin requirement.

Initial margin requirement = New order initial margin + Sum (initial margin orders) + Sum (initial margin portfolio)

Trading example

You deposit USD 10,000 in your account. You decide to buy 100,000 USDJPY. You hold no other open position(s).

Trade (USDJPY)	Aggregate Position	Initial margin requirement (USD)	Initial margin available (USD)
Buy 100,000		2,000	8,000 (10,000 – 2,000)
Buy 100,000	200,000	4,000 (2,000 + 2,000)	6,000 (8,000 – 2,000)
Buy 100,000	300,000	6,000 (4,000 + 2,000)	4,000 (6,000 – 2,000)
Buy 100,000	400,000	8,000 (6,000 + 2,000)	2,000 (4,000 – 2,000)
Buy 100,000	500,000	10,000 (6,000 + 2,000)	0 (2,000 – 2,000)

Any further attempt to buy will be rejected since the initial margin available has been utilised.

How is maintenance margin utilisation calculated?

Maintenance margin utilisation is the percentage of margin collateral utilised for trading leveraged products. It is calculated as follows:

Maintenance margin utilisation = (100 x Maintenance margin reserved) / (Account value + Other collateral – Not available as margin collateral)

What is the 100% margin close-out level?

Automatic margin close-out will occur at 100% (maintenance) margin utilisation.

For example:

You deposit EUR 10,000 in your account. You decide to buy 100,000 EURUSD. You hold no other open position(s).

Initial margin requirement = 100,000 x 1.50% = EUR 1,500

Maintenance margin requirement = 100,000 x 1.00% = EUR 1,000

Margin utilisation (at the time of the trade) = 10.0% (EUR 1,000/EUR 10,000)

Later due to market movements there is an unrealised loss on your account of EUR 9,000.

Margin utilisation = 100.0% (EUR 1,000/ (EUR 10,000 – EUR 9,000))

As a result, your margin is fully utilised and therefore you have no capacity to enter into further transactions (except to close out your open position(s)). You will be in breach of margin requirements and, to comply with the margin close-out rule, we shall seek to immediately terminate, cancel and close-out all or part of any outstanding position(s), as well as cancel any open orders.