Margin and leverage
- What is margin and leverage?
- What is the margin level for each market?
- Margin requirements for large trade sizes
- Margins for hedging
- What is a margin close out?
- Margin close out levels
1. What is margin and leverage?
Margin is the amount of money you need to deposit with us in order to place a trade and maintain that position. When you place the trade you must have enough Net Equity (cash and unrealised Profit & Loss) in your account to pay the margin requirement for that trade and the commission (if applicable) and/or any charges including the spread. Margin is not a fee; it is deducted from your account and returned when the position is closed.
2. What is the margin level for each market?
Our margin requirements differ according to market, asset class and position size. You can find out the specific margin of each instrument in the market information sheet on your platform. To calculate the amount of funds required to cover the margin requirement when you open a position, simply multiply the total notional value of your trade (stake x price of instrument) by the margin factor. With City Index's trading platforms, you can calculate your margin before placing a trade through the platform's margin calculator, monitor each position's margin requirement separately or review your account's total margin requirement through the "margin level indicator".
Let’s say we wanted to open a position in Keppel Corp CFD, which has a margin requirement of 10%. If the buy price is S$7.00 and we wanted 10,000 CFDs. The total value of the position is S$70,000 (S$7 x 10,000), with S$7,000 allocated from your account as margin (S$70,000 x 10%)
To read more about how margin works, please visit our education section.
3. Margin requirements for large trade sizes
The larger the trade size, the higher the risk level associated with the trade. Therefore we may increase our margin requirements for larger size trades or any additional trades in that instrument. To do this, City Index increases the size of the margin requirement at specific levels, known as 'step margin levels'.
For example, in Company ABC
|CFD stake size||Margin|
If you were to place a trade in Company ABC CFD for a quantity of 310,000 CFDs. The first 150,000 CFDs would be charged an initial margin of 10%, while the remaining 160,000 CFDs would be charged at the second tier margin of 20%.
4. Margins for hedging
Hedging margins are set to the 'longest leg' whereby you will be charged margin for the longer portion of the hedge trade, and nothing for the shorter leg.
For example, you are trading CFDs and have two open Wall Street positions, originally selling a quantity of 10 and then buying a quantity of 5. In this case, you would only be charged margin for the original, larger side of the trade, the Wall Street short 10 position. Assuming that the margin for selling 10 Wall Street is $2800 and the margin for buying 5 Wall Street is $1400, you would only need to provide enough margin to cover the original, larger sell position for both of the trades in this market.
5. What is a margin close out?
If your margin level is at or below the margin close out (MCO) level, we may have to close any or all of your open positions as quickly as possible; this is to protect you from possibly incurring further losses. We strongly recommend that you monitor your margin level carefully, as you should not expect to receive a margin call or warning prior to closure. The Margin Level Indicator on the trading platform makes monitoring your margin level very easy.
The calculation for the margin indicator is determined by the Net Equity in your account divided by your Total Margin Requirement. To improve your margin indicator do one or more of the following:
- Deposit funds,
- Close or part close positions,
6. Margin close out levels
Margin close out levels vary by account type. If your account offers shares, then your MCO will be 50% of your entire margin requirement. If it does not offer shares your MCO will be 100%. If you drop below your margin requirements, your largest losing position will be closed first, followed by the next largest, and so on until your Margin Level moves back above the required minimum amount. This is in order to protect you from incurring further losses.
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