Margin Deposit Definition – What is Margin Deposit? | CFI LB

Margin Deposit

The margin deposit is also known as the initial margin, deposit margin or simply the deposit. if you trade forex, equities, commodities, or indices with a broker using leverage or 'on margin', it means you are ultimately borrowing money as you will be using [leverage] on your trades. to start borrowing that money, you need to put down a deposit.

 

When you start trading on margin, you only deposit a percentage of the full amount you wish to trade, starting from 0.25%, 0.5%, 1%, 2%, and so on. for example, if the leverage offered for a specific instrument you wish to trade on is 20:1, the margin that you will need to invest is 5% of your trade size. the value of the full position would be 20 times the value of the deposit required to open the trade.

 

The key thing to remember when trading margined products is that leverage can increase your profit, but it works the same the other way around as well, so losses will be amplified.

 

Margin calculators will quickly compute the margin percentage, the required margin, and the amount you need to maintain a trading position, depending on the contract size, accounting currency, and the financial assets you are trading.

 

Example of a margin deposit

For example, at cfi the leverage available for retail clients on equity cfds is 1:10 meaning you only need to have 10% of the value of a position (the margin deposit) before entering it. this allows you to control a larger position with a smaller amount of money.

 

key takeaways

  • Trading on margin allows you to control a larger position with a smaller amount of money
  • Calculate the margin required by your broker in advance because every broker is different
  • Trading on margin, i.e. with leverage can increase your profit, but losses will be amplified as well
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CFI provides execution-only services and does not provide any investment advice. To make an investment decision, you cannot rely on the content of this website, or on any information, opinion, report or other materials (“Information”) you receive from CFI, or its representatives. Such Information is general and does not consider your objectives and your financial situation, thus they shall not be considered in any way as an express or implied promise nor a guarantee of any profit or limit of loss. CFI shall not bear any liability in case you used or relied on such Information. Please ensure that you make your own research and seek independent advice if necessary.

Forex and CFDs are leveraged products that incur a high level of risk. A small adverse market movement may expose the client to lose the entire invested capital. The majority of retail client accounts lose money when trading in CFDs. Please be aware of trading risks and that you could sustain a loss exceeding your deposited funds, even if a stop loss is used.

CFI Lebanon is regulated by the Banque du Liban and the Capital Markets Authority

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