Leverage & Margin
The use of Leverage & Margin
One of the main appealing factors about forex trading is the use of Leverage & Margin. It allows you to use a small amount of capital to open and maintain a much larger position. For example, if you want to open a trade of $100,000 worth of EURUSD, you don’t have to have that $ 100,000 dollar in your account!
What is leverage?
Leverage enables traders to increase market exposure beyond their initial investment. It is commonly used in margin trading, where only a portion of the total trade value needs to be deposited. However, while leverage can magnify gains, it also increases risks, potentially leading to significant losses.
Important Considerations When Using Leverage:
Higher leverage increases both profit potential and risk exposure.
Losses can exceed the initial investment if risk management is not properly applied.
Margin requirements vary based on market conditions and regulatory guidelines.
As per FCA regulations, leverage limits for retail clients are set between 30:1 and 2:1, depending on the asset class. If you are eligible for a professional account, different trading conditions may apply.
At CWG Markets, we ensure that leverage limits for retail clients adhere to FCA regulations. We encourage responsible trading and urge all traders to fully understand the risks associated with leveraged products.
At CWG markets, you can use leverage to trade flexibly. To minimize your trading risk, margin and leverage will be adjusted dynamically based on the net value of your account and the data releasing period.
What is Margin?
It may be easier to understand if you think of the margin as a deposit for the trade that you want to open and maintain. The broker that you’re trading with will keep a portion of your balance to cover the potential loss of that trade. Once you close the position, the margin will be credited back into your account.
The margin is normally expressed as a percentage of the whole trade and is called the ‘Margin requirement’. You’ll be given a margin requirement for every trade that you open, and it will vary depending on the instrument that you trade and the broker that you choose to trade with.
What are the Margin requirements?
One of the major benefits of trading CFDs is that clients can trade on margin using leverage. CFD trading means clients can trade a portfolio of shares, indices, or commodities without having to tie up large amounts of capital. In order to open and maintain a position, initial and maintenance margin levels must be met. Both the initial and maintenance margin level requirements are specific to each financial instrument.
How do I calculate my Margin requirements?
Initial Margin = (position’s opening price*size of the trade)*initial margin percentage. For example, you buy 30 Facebook stocks CFDs for $75 each (a "Buy" position), then the value of the position would be 30*75=$2,250. If the Initial margin percentage were 20%, the required initial margin would be 20%*2,250=$450. Maintenance Margin = (position’s opening price*size of the trade)*maintenance margin percentage. For example, you buy 30 Facebook stocks CFDs for $75 each (a "Buy" position), the value of the position would be 30*75=$2,250. If the maintenance margin percentage were 10%, then the required maintenance margin would be 10%*2250=$225.
