Leverage and margin 101
Leverage is a tool used when spread betting and trading CFDs. It enables you to open a position using margin (a deposit) while still getting full exposure to an underlying asset. This means you’re paying an initial deposit, that’s a fraction of the full value of your trade, with your provider loaning you the rest.
For example, at a margin requirement of 20%, you’d need to deposit £200 to open a shares position worth £1000. In the case of indices, a 5% margin would require a £50 to open a position at £1000. And for forex, a 3% margin requirement would need you to deposit £30 to open a position worth £1000.
Trading on margin comes with risk, because the position is still based on full exposure. This means you can gain or lose money quickly, which is why you should set free stops on all positions to ensure you don’t lose more money than you’re comfortable with.
If you don’t set stops, you could be placed on margin call and your positions might be closed out automatically. However, note that our margin policy doesn’t guarantee against your capital running into a negative balance.
For standard trading accounts, the margin call will be triggered when your equity drops below 50% of your initial deposit requirement. We’ll do our best to contact you when your equity drops beneath 99%, 75% and 55% of margin, respectively. However, it’s your responsibility to ensure your account has sufficient funds.
To avoid your position from being closed, transfer enough funds into your account to increase your equity above the margin requirement, or just close positions to reduce it.
