Leverage and Margin
Leverage is the mechanism whereby your CFD margin deposit controls an asset of multiple times greater value, offering a magnified trading impact and accelerated return. For example: You deposit $1,000 and your Equity is $1,000 and the leverage offered is 1:50. Your leveraged amount is 1,000 x 50 = $50,000. The Required Securities (margin deposit) is displayed on each pop-up trade screen. Leverage is a technique used to multiply gains; however leverage can also multiply losses. Remember, the high degree of leverage can result in substantial losses.
Note that margin requirements usually increase proportionately to the value of the underlying trade asset.
What is a Margin Call?
Your Margin is monitored in real time, providing you with the benefit of knowing where you stand at all times. The Maintenance Margin level is the minimum amount of equity needed to maintain an Open Position. Should your equity fall below the minimum amount, Xtrade will automatically execute a Margin Call trade and close any open positions until your account equity exceeds the Maintenance Margin level requirement.
Example of a Margin Call:
You signed up and deposited $10,000 via credit card:
- Equity: $10,000 (Deposits - Withdraws + P&L of opened positions).
- Available Balance: $10,000 (Balance + P&L of open positions - Initial Margins).
- P&L = $0 (total profit and loss of all open positions including daily Premiums).
10.20am - You buy 200 Google Shares (CFDs) at $540.00.
The total amount you bought is: 200*$540 = $108,000.
The Initial Margin that is needed for 200 Google Shares is 2%: $2,160.
The Maintenance Margin that is needed to maintain 200 Google Shares is 1%: $1,080.
If your equity drops below $1,080 you will get a Margin Call. Xtrade will liquidate your open positions.
- Equity: $10,000 ($10,000 + $0).
- Available Balance after you purchased the Google shares is: $7,840 ($10,000 - 2%*$108,000).
- P&L = $0.
1.00pm - Google shares drop to $510.
- 'Equity' is $4,000 (-$6,000 + $10,000).
- Available Balance: $7,240 ($10,000 - 2%*$108,000 + 200*($510 - $540)).
- P&L = -$6,000 (200*$540 - 200*$510).
1:15 pm - Google shares fall to $495. You receive a Margin Call and Xtrade liquidates your position.
- Equity: $1,000 (-$9,000 + $10,000).
- Available Balance: $0 ($10,000 - 2%*$118,000 + 200*($495 - $540)).
- P&L = -$9,000 (200*$495 - 200*$540).
The reason you received a Margin Call is because your Equity is $1,000 and you need $1,080 to maintain an open position on 200 Google Shares. Therefore, Xtrade has liquidated your position. Your current balance is:
- Equity: $1,000.
- Available Balance: $1,000 (Deposits - Withdraws + P&L of closed positions).
- P&L = $0 (no open positions).
To open a new position, your available account equity must exceed the trade's initial margin level requirement. Margin levels vary among the different financial instruments.
You can view your required margin total under the My Account bar on the left side of the trading platform page. Please be aware that your initial margin is continuously monitored in real-time.
Maintenance Margin Level
To keep your new position open, the equity in your account must exceed the total Maintenance Margin Level. The Maintenance Margin Level requirements are specific to each financial instrument. Xtrade always displays the Maintenance Margin level for each individual instrument.
You can view your Maintenance Margin under the My Account Bar on the left side of the Main Page. Please remember that your Maintenance Margin is continuously monitored in real-time.
For your financial safety, if additional margin is not provided, Xtrade will automatically close out positions on your behalf. Remember that leverage magnifies the scope for both return and losses and you should be cautious when using the leverage.