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