How to calculate CFD margins
Each product is set at a different rate; whether it’s Forex, indices or commodities. Some margins can be as low as 0.5% of the position’s value.
What is a CFD margin?
When engaging in a Contract for Difference, you are only required to deposit a percentage of the contract’s full value. This is called a margin and it allows traders to open large positions while investing a fraction of the value. The margin is used as leverage, giving traders full exposure to the position. A margin is required before opening a position on your account. Your account should also hold extra funds to cover any potential losses and stop your account going into margin call. Always remember, leverage is a double-edged sword. While it can maximise your profits, it can also increase your losses.
Calculating the margin
The margin, or margin percentage, is determined by your CFD provider. Each product is set at a different rate; whether it’s Forex, indices or commodities. Some margins (deposits) can be as low as 0.5% of the position’s value. This allows traders to spread their funds over several products. To calculate your deposit on an index CFD for example, you would multiple the index value by the margin percentage.
AUS200 value x 0.5% = margin payable per contract
5553 index points x 0.5% = $27.76 per contract
You pay $27.76 as a margin to open one contract.
JPN225 value x 1% = margin payable per contract
21,194 index points x 1% = $211.94 per contract.
You pay $211.94 as a margin to open one contract.
Different types of CFDs
EightCap clients can trade 8 of the world’s most popular indices through Metatrader 4 (MT4) and Metatrader 5 (MT5). Indices aren’t the only products offered as a CFD. Clients also have access to commodity prices, including oil (Brent and West Texas), gold and silver and cryptocurrencies like Bitcoin.
Forex trading is a little different, instead of looking at individual markets your account will be set to a leverage rate. There are several leverage options available to traders, from 1:1 up to 500:1. Popular leverage rates used by retail traders are generally 50:1 – 100:1 and 200:1. This is not an exact science as traders different account balances and risk management systems.
For more information on EightCap’s margins, please contact us directly.
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Risk Warning: Margin trading involves a high level of risk, and may not be suitable for all investors. You should carefully consider your objectives, financial situation, needs and level of experience before entering into any margined transactions with EightCap, and seek independent advice if necessary. Forex and CFDs are highly leveraged products which mean both gains and losses are magnified. You should only trade in these products if you fully understand the risks involved and can afford losses without adversely affecting your lifestyle (including the risk of losing substantially more than your initial investment). A Product Disclosure Statement (PDS) and a Financial Services Guide (FSG) for our products are available to download from our Legal Documentation page. You must assess and consider them carefully before making any decision about using our products or services.
EightCap is a registered business name of EightCap Pty Ltd (ABN 73 139 495 944). We are regulated by the Australian Securities & Investments Commission (ASIC) - our AFSL number is 391441. This licence authorises us to provide financial services to people in Australia.
The information on this website is of a general nature only and is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. EightCap is not a financial adviser, and does not issue advice, recommendations, or opinion in relation to acquiring, holding or disposing of a margined transaction. We provide general advice only and accordingly you should consider how appropriate the advice (if any) is to your objectives, financial situation and needs before acting on the advice.