All You Need to Know About CFD Margin 2021!

Oct 27, 2021CFD Trading0 comments

CFD provides a means for traders to trade conveniently in the financial markets. Trading commodities, Forex, and equities are possible by committing a CFD margin or giving a deposit. While trading in the spot market needs you to invest the total amount of the shares worth, CFDs require as low as 20% to commit CFD margin to open the position.

The requirement for the initial CFD margin may increase if the position moves against you, referred to as variation margin. If there’s unused equity in the trading account, it will be helpful to maintain the position, but more equity will be required if there’s none. Hence, monitor the CFD margin regularly and stop-losses to mitigate risk and guard against CFD margin calls.

Let’s now delve into the topic properly by answering the question, “What is CFD margin?”

Part 1: Know About CFD Margin

1. What is CFD margin?

CFD margin simply means that you pay a small percentage of the total value of the underlying shares, usually between 10-20%, to open the position instead of paying the total value.

2. What is the difference between traditional margin trading and CFD margin trading?

With the traditional margin trading, the underlying stock is still yours, but with CFDs, you don’t own the store, but you are simply in a contract with your broker to help exchange the difference allying the opening and closing value of a share. Although the final stock exposure is hedged out using equity swaps by a CFD broker. Your broker holds 40% of the securities as collateral for shares bought on a margin that you can liquidate if necessary.

However, there’s no owner of the said asset with CFD and, therefore, no collateral.

Part 3: What are CFD margin requirements at different trading platforms?

Because CFD margin requirements differ according to the trading platform, one needs to know of it. So here it is

Products Minimum margin requirements 
Equity CFDs without stoploss features
  1. 10% of index stock
  2. 20% of non-index stock
Index CFDs without stoploss features 5%
Foreign Exchange CFDs without stoploss features 5%
CFDs with nonguaranteed stoploss features The sum of the amount at risk + 30% standard margin
CFDs with guaranteed stoploss features The amount at risk or the standard margin
CFDs with guaranteed stoploss features, if the relevant CFD is subject to any adjustment for dividend, interest, or commissions The sum of the amount at risk and 10% of the amount at risk or the standard margin.
Any other CFD without stoploss features 20%
Spot foreign exchange contracts for leveraged overseas exchange trading with non‑guaranteed stop‑loss features The sum of the amount at risk+ is 30% of the standard margin or standard margin
Spot foreign exchange agreements for leveraged foreign exchange trading with guaranteed stop‑loss features The amount at risk or the standard margin
Spot foreign exchange contracts for leveraged external exchange trading with guaranteed stop‑loss features, if the relevant spot foreign exchange contract for leveraged foreign exchange trading is subject to any adjustment for dividend, interest, or commission the sum of the amount at risk and 10% of the amount at risk; or

The standard margin

Any other spot foreign exchange contracts for leveraged foreign exchange trading without stoploss features 5%

4. Your guide to CFD margin call example 2021

Though trading statements sometimes can be confusing, It is essential to be observant to know when you go into a CFD margin call situation. Most times, traders are only interested in how and when to receive a margin call, only when they get the call.

To know if you’re due to make payment for margin, add up all the margin requirements for all open positions on your account. If the total cash on your account plus the overall value of profit and loss of your open positions, in other words, the surplus is lower than the margin required on your account, you will have to fund the shortfall.

For example, if a typical trade is going long 1000 BHP Billiton with a balance of $2,000.00. Buying a 1000 BHP Billiton unit at $39 would need an initial payment of $1,950.00 or 5% of the total value. This is because every open trade will require a deposit, whether it be long or short.

If BHP Billiton later falls to $38.50, the loss ran on 1000 shares would be $500.00, i.e. ($0.5a × 1000 shares).

In this example, the cash present in the account and loss is equal to $1,500

Margin is the floating amount rather than the fixed payment. With $38.50 BHP Billiton trading the deposit will now be $1,925.00 (5% floating). However, the surplus is lower than the required margin on the open trade.

Surplus = $1,500

Initial Deposit = $1,925

Shortfall = $425

This shortfall would be the amount of the margin call and the required amount to keep the position open.

If your cash in hand were $2,500, to begin with, you would not be in a margin call. It is essential to know that for 1000 shares, for any cent the stock fell on the long trade, your losses would increase by $10 per 10,000 shares, equivalent to $100.

This example shows you what to expect when entering a trade and how much you can manage the stock to move against you before you receive a margin call.

If you’re still not convinced, ask for advice from your CFD provider before entering a trade.

Part 2: Top 5 Trading Platforms and their CFD margin requirements

Here are the top CFD trading platforms and their margin requirements.

1- eToro

etoro

eToro is an excellent foreign exchange broker. It has a graphics-intensive platform mainly used by cryptocurrency traders inside and outside the United States. With its competitive features, it allows you to copy transactions. It has 49 currency pairs and more than 2000 CFDs. Its most striking feature is the ability to copy registered users’ transactions, investment portfolios, and strategies. It is a well-structured platform suitable for beginners and cryptocurrency transactions. The FCA regulates it. Only US customers are exempt from withdrawal fees, and customers in other countries are exempt from $5. According to the transaction size and the maximum leverage of 1:400, the spread becomes larger than the other.

Now let’s know some particular terms regarding eToro.

Is eToro secure or a scam?

eToro has regulations, including the Financial Conduct Authority (FCA) for providing services to U.K. clients and the Australian Securities and Investment Commission (ASIC) to serve services to Australians. Though eToro is not under any stock exchange, it is considered safe because of the regulations of top-tier financial authorities.

Customer service:

Customer service of eToro is average. Traders will get fast and relevant answers through its service. eToro customer service is not available on weekends. Traders can get the benefits from Monday to Friday, 24 hours a day.

Instruments:

eToro provides trading instruments like Crypto, Commodities, Indices, ETFs, Stock, and Currencies.

Spread and Margin:

eToro provides the best possible spread rates. The spreads are variable. The margin also varies. There are no specific margin levels mentioned in the platform.

Deposit and withdrawal requirements:

eToro requires a minimum deposit of $50. Depositing via Bank Transfer will require a minimum deposit of $500. A first-time minimum deposit is $10,000 for a corporate account. Depositing and withdrawing money includes a lot of available options, and most of them are free. eToro requires a $5 withdrawal fee.

Leverage:

The new leverage limitations:

Leverage

Leverage
30:1 major currency pairs
20:1 non-major currency pairs
20:1 gold, and major indices
10:1 gold and non-major equity indices
5:1 CFDs
2:1 cryptocurrency

Trading platforms:

eToro has eToro OpenBook  and Webtrader for trading.

Trading experience:

With eToro, traders can easily place a trade is simple. It has the option of creating a customizable watchlist. Traders can share their watchlists with mobile apps. On a mobile device, placing a trade is similar to the web browser.

Users:

eToro has over 20 million clients globally.

PROS

  • Excellent copy trading function
  • A user-friendly and well-designed interface
  • A large number of investment options
  • It provides a good trading community. A trader can learn from other traders

CONS

  • Relatively common
  • Get any cryptocurrency for at least $25

2-AvaTrade 

avatrade

AvaTrade is one of the most well-regulated CFD trading and foreign exchange brokers. It only provides foreign exchange, different CFDs (stocks, indices, commodities, etc.), and cryptocurrencies. It provides users with access to tools

and various asset classes. It also has copy trading and social trading functions and is not regulated by the FCA. FCA is an institution that ensures fair market practices, so it does not accept our customers’ supervision constraints. This platform does not guarantee stop-loss orders controlled by the game but a user-friendly interface and convenient trading conditions. The maximum leverage is 1:400.

Now let’s know some particular terms regarding AvaTrade.

Is AvaTrade safe or a scam?

AvaTrade is secure because the broker is under multiple top financial organizations like the Central Bank of Ireland.

Customer service:

AvaTrade provides reliable customer support and provides relevant answers via options such as phone, live chat, and email for customer service. Customer support is available only 24/5.

Instruments:

Instruments offered by AvaTrade include Commodities, Forex, Stock, ETFs, Indices, FXOptions, Bonds, and cryptocurrencies.

Spread:

The spread varies on AvaTrade. Check out some of the famous instruments’ spread.

  • Forex: EUR/USD - 0.9; EUR/CHF- 2; GBP/USD- 1.6
  • Commodities: Gold- 0.34; Silver- 0.029; Platinum- $1.10 over market
  • Stocks: 13%

Margin:

  • Forex: most major currencies 0.25%
  • Commodities: Gold- 0.5%; Crude oil- 1%; Platinum: 2%
  • Stock: 10%

Deposit and withdrawal requirements:

A minimum deposit requirement of AvaTrade is $100.

The withdrawal process of AvaTrade can be late and may take three business days. Deposits via a debit card may also be slow.

Leverage:

Though leverage will vary but stable on some popular instruments like:

  • Forex: 400:1 for major currency pairs
  • Commodities: Gold- 200:1; Crude oil- 100:1; Platinum- 50:1

Trading platforms:

AvaTrade offers several effective platforms like Web Trading, AvaTradeGO, AvaOption, Mac Trading, and AvaSocial for trading.

Trading experience:

AvaTrade provides an enhanced trading experience with a focus on a Customer-First Approach. This platform is also available to retail traders.

User:

AvaTrade serves around 200,000 registered clients.

PROS

  • You can choose a trading platform
  • Multilingual customer service
  • A demo account for practice
  • It supports complete foreign exchange CFDs and cryptocurrency products
  • It features negative balance protection.

CONS

  • Not accepting American customers
  • Not regulated by FCA

It lacks trading news and research functions.

3- IG

ig

I.G. is an easy-to-use CFD and foreign exchange broker that provides complete currency market access and supports more than 80 currency pairs. The broker only offers foreign exchange transactions to its U.S. clients. It is a platform that only provides foreign exchange transactions for American customers. It has low-spread cost customer service and foreign exchange education, active research tools, and a user-friendly interface hoping to enable it to compete with other online brokers. It accepts account deposits of $250. A broker is an asset for new foreign exchange traders and those who prefer a more simplified interface. The platform is authorized by the FCA, with a leverage of 1:50.

Is IG safe or a scam?

IG is well-observed under the Financial Conduct Authority (FCA), UK, and the Federal Financial Supervisory Authority (BaFin). It is under the London Stock Exchange, and so it is considered safe.

Customer service:

I.G. customer service includes live chat, email, and phone support. I.G. doesn’t serve 24/7. Email and phone assistance can be slow, and live chat is the maximum time offline.

Instruments: 

AvaTrade provides instruments like Forex, Commodities, Shares, Cryptocurrencies Futures trading, and Spot trading.

Spread:

The spreads range at 0.6 pips at IG on major Forex currency pairs. On commodities, spreads are from 0.3 pips (Spot Gold). The spread of FTSE 100 begins at 1 point.

Margin:

The minimum margin requirement of AvaTrade is 0.45%. From Forex to commodities instruments, the average margin ranges from 3.33% to 50%.

Deposit and withdrawal requirements:

IG requires a $250 deposit for U.S. accounts. The highest leverage can be 50:1 for U.S. clients per CFTC regulations. IG provides clients free deposits and withdrawals with multiple options such as bank wire transfer, PayPal, and credit card for funding an account.

Leverage:

On Forex, indices and major commodities like Spot Gold have 200:1 leverage. On other instruments, the broker offers minimum leverage of 50:1.

Trading experience:

The trading experience of IG is good through its offered platforms and services. Popular platforms like MetaTrader 4 and API interfaces provide great trading services to their traders.

Trading platforms:

IG offers trading platforms like MetaTrader 4, Mobile trading, Trading signals, Trading alerts, Algorithmic trading, ProRealTime, and API interfaces.

Users:

IG provides services to almost 313,300 active clients.

PROS

  • Easy to navigate platform for beginners to master
  • The margin rate is easy to understand and affordable
  • Very suitable for beginners in foreign exchange trading.
  • It is regulated by FCA (UK) and CFTC, NFA (US)

CONS

  • The account opening process is very time-consuming.
  • Weak basic research
  • The high cost of stock CFDs

4-Interactive Brokers

interactive brokers

Interactive Brokers is one good broker for advanced traders. It has a second to none range of tradable securities, including foreign stock and a surprising Ibkr CFD margin rate is low. It has a minimum of $0 and offers a fractional share of stocks. This is one of the top two used by investors and active traders worldwide, with the widest range of offering compared to other brokers. The fee of 0.00 is $5 per share. It has a maximum leverage of 1:50.

Is Interactive Brokers safe or a scam?

Interactive Brokers is safe as it is under the regulation of financial tiers such as the Financial Conduct Authority (FCA) and the Securities and Exchange Commission (SEC).

Customer service:

Interactive Brokers’ customer service could be better. Interactive Brokers’ customer support provides options through phone, email, live chat, and an automated ‘iBot.’ It tries to relevant answers. Interactive Brokers may not provide most options available 24/7.

Instruments:

Interactive Brokers offers a wide range of instruments to its clients for trading. Traders will find here multiple products.

Spread:

Interactive Brokers provides spread that will vary based on the current price of instruments. In Forex, the minimum spread requirements of Interactive Brokers for trading ranges from 0.1 pips.

Margin:

The initial margin requirement of Interactive Brokers for Federal Reserve Regulation is 50% at least. The margin requirement of maintenance is 25% at least.

Deposit and withdrawal:

For account opening in Interactive Brokers, the requirement of funding is $100. To invest in a number of portfolios, a minimum of $25,000 is required to fund the account. The Interactive Brokers offers the withdrawal process free for a month. But the broker allows traders to deposit and withdraw through bank transfers.

Leverage:

Interactive Brokers offers maximum leverage of is 1:40.

Trading experience:

Interactive Brokers provide excellent service through its Trader Workstation (TWS). The trading experience of Interactive Brokers is more palpable to all brokers with TWS. On the mobile app, the workflow is easy to use.

Trading platforms:

Interactive Brokers provides a desktop-based platform, Trader Workstation (TWS).

Users:

The Interactive Brokers serves around 607,000 traders’ accounts.

PROS

  • Advanced trading platform
  • Extremely safe and well-regulated
  • A large variety of investment products
  • Competitive commission
  • Advanced research tools to help traders active and smart order route

CONS

  • Not the best choice for small-volume traders
  • The complexity of the platform takes time to learn
  • The inactive account can generate fees
  • Smart other routes are absent from ibkr.

5- CMC Markets

cmc markets

CMC Markets is a worldwide CFD and forex broker considered safe because top U.K. financial institutions regulate it. It has a low forex fee and has no charges on deposits and withdrawals, but sophisticated research and educational tools. It takes a very high fee for stock CFD and covers only CFDs and forex products. This platform provides readers access to an extensive offering range of CFDs and spread betting across different asset classes. It offers a competitive spirit that widens and contracts to depend on the client account’s size and protections that are going into a negative balance. FCA regulates CMC in the U.K. It doesn’t accept U.S. clients, which is what made it non-global. It allows account deposit or $0, and fees guaranteed to stop commissions overnight financing cost inactivity cost. The maximum leverage of this platform is 1: 500.

Is CMC Markets safe a scam?

CMC Markets is well-observed under authorities like the Financial Conduct Authority (FCA). And so, it is considered secure. The broker platform is under the London Stock Exchange.

Customer service:

The customer service of CMC Markets offers several contact options, including phone support, live chat, and email in several languages.

Instruments:

CMC Markets offers Cryptocurrencies, Commodities, Forex, Indices, Shares & ETFs, and Treasuries.

Spread:

Check some spread of the most popular instruments like FX, commodities, indices, and treasuries.

  • Forex: GBP/USD- 0.9; EUR/USD- 0.7; USD/JPY- 0.7
  • Commodities: Gold- 0.3; Crude Oil West Texas- 2.5; Crude Oil Brent- 2.5
  • Indices: US 30- 2.0; Germany 40- 1.0; UK 100- 1.0
  • Treasuries: UK Gilt- 2.0; Euro Bobl- 2.0; US T-Bond- 3.0

Margin:

The margin differs on CMC Markets.

  • For indices, the margin is 5%,
  • For shares, the margin is 20%,
  • For commodities, the margin is 5%,
  • For cryptocurrencies, the margin is 50%,
  • For treasuries, the margin is 3.3%.

Deposit and withdrawal:

There is no requirement for the deposit on CMC Markets. CMC Markets offers multiple deposit and withdrawal options. Most of the withdrawals are free. For international bank transfers, the required fee will be £15.

Leverage:

On Forex, CMC Markets offer a margin near 3.3%. The leverage based on margin will be 30:1.

Trading platforms:

CMC Markets provides MetaTrader 4 and Mobile trading apps for iPhone, iPad, and Android for trading.

Trading experiences:

CMC provides a platform named ‘Next Generation,’ that is modern and can be customized. It doesn’t offer two-step authentication.

Users:

CMC Markets provides service to more than 80,000 active clients.

PROS

  • Meager forex fees
  • Available on web and mobiles platforms
  • Availability of advanced research and educational tools.
  • It offers protection from negative balance

CONS

    • Very high stock CFD fees
    • A limited number of products on the portfolio
    • Complications in the account verification process and backtesting is not available

    Part 3: Some FAQS

    1 – What is the initial margin in CFD trading?

    An initial margin is an amount required to open a new position or enter a trade. It is usually at a certain percentage of the total value of the share being bought or sold. The CFD provider sets this margin. It is essential to know that margin trading could increase the risk of running a loss which could be more than the amount invested.

    2 – Is a margin call terrible?

    A margin call can be catastrophic when your equity in a margin account goes lower than a particular threshold and becomes risky. It is bad for investors as it turns a poor choice of investment to be detrimental.

    3 – What is a short CFD position?

    Short CFD position means “going short” or “short selling,” which is how you profit with the fall in prices. Although this causes many to worry when they start trading, after mastering trading, you’ll find out that it is one good way of making a profit in a good or bad market.

    Trading at the short CFD position means you already opened your CFD trade using a “gone short” order from a rice decline.  

    Let’s check the comparison table:

    Trading platform Overall Rating: Account opening: Trading platform: Deposit and withdrawal: Fees: Markets and products: Research: Education: Customer service:
    eToro 4.7 4.4 5.0 3.5 4.8 3.8 3.5 3.3 3.5
    AvaTrade 4.5 3.5 5.0 4.5 4.1 2.0 4.6 4.5 5.0
    IG 4.6 3.1 4.4 4.5 5.0 3.9 3.5 3.6 5.0
    Interactive Brokers 4.9   4.2 3.4 3.5 3.7 5.0 4.3 3.4 4.5
    CMC Markets 4.6 3.7 4.1 4.8 4.2 2.2 5.0 4.5 5.0

    Conclusion

    Finally, now that you’ve got an extensive knowledge on CFD margin explained. You can now venture into CFD trading having confidence that you can have a great starting point in CFD margin trading with the knowledge gathered from the answers given to the FAQs.

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