Margining
Margin is a term derived from the futures market, and provides for leveraged trading in financial products. In its most simple format, if you offered the trading of an instrument at 5% margin, in effect you need only to deposit 5% of the total purchase cost of that deal to open that position.
Initial margin requirements for CFD positions are a percentage of the total contract value. The majority of share positions are margined at 5% and all Index and Sector positions are margined at 1%.
Share positions
Initial Margin (in currency of underlying exchange) = (Quantity x Share Price) x 3-10%
Index and Sector positions:
Initial Margin (in currency of underlying exchange) = (Number of contracts x level) x 1%
Example:
You buy 2000 contracts of Vodafone @ 140.25. This provides a notional position of 2000 x 140.25 = 2,805. Vodafone is margined at 3% so you would need at least 84.15 initial margin to open this position.
If Vodafone's price goes down to 138, the margin requirement would then move down proportionally to 2000 x 138 = 2,760, where 3% of this contract value would now become 82.80 which is required to hold this position.
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