A: Margin Requirement denotes the deposit required in respect of each open bet on your account. When you place a spreadbet you must have sufficient funds to cover the Margin Requirement applicable to that trade. Margin is the equivalent of a 'good faith' deposit. It's a small percentage, usually between 2% and 30%, of the value of the contract that is deposited with a provider and is required to open a position.
Financial spread betting is a margined product. Margin trading is an efficient use of your capital because you only need to allocate a small proportion of the value of your position to secure a trade, whilst still maintaining full exposure to the market. This means that you can trade big positions by only depositing a fraction of the normal capital outlay and in effect here what you're doing is to magnify the potential returns on investment. Spread betting on margin however does mean that if a position turns against you, your losses can also be magnified. Also, if you trade the markets regularly through a broker, you will know how commission charges can affect your bottom line.
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When you spread bet, the provider will quote you a bid-offer spread for a share or the level of a financial index at a given future date. The 'margin factor' relates to the 'deposit' retail traders must hold with a spread betting provider to cover potential losses - as you can lose more than your original stake.
For instance, if the margin factor on a particular share is £200 then a spread better wanting to bet £10 per point movement would need to deposit a margin of £2,000 (200 x £10). With the margin factor increased by 10% to £220 then the deposit margin would need to increase to £2,200. The initial margin is initially deducted from your cash balance after which the position is then continually market to market with the running profit or loss updating in real-time. Every point the share moves automatically increases or decreases the free cash resources.
Margin requirements are a good comparative of a market's volatility, whereby the more you need on deposit to open a position, the more volatile the market generally is. For instance, most clients tend to start trading the FTSE 100 index or blue chip shares as they tend not to require too much margin. The margin requirement for a £1 bet on the FTSE 100 index could be as low as £30 (although different providers have different margin requirements), whereas a £1 bet on the Nikkei might mean a deposit of £300 to £500 is required.
A: When you trade in the world financial markets, like for example buying shares you put up the money and buy the shares.
For example if you wanted to buy some shares in Vodafone because you think they are looking cheap and will go up then you could call up a broker, and if you wanted to invest £1000 he would buy as many shares as he could for you and take a small commission all out of your £1000.
Or you could do a margin trade, like a spread bet.
Take Capital Spreads. On Vodafone the margin rate is 10 percent (no commission) .
So if you wanted to buy your £1000 worth of Vodafone you would only need to deposit £100 (10 pct of £1000) with the spread betting company and leave the rest in your bank! So margin trading enables you to leverage.
You could use your entire £1000 in a long spread bet and effectively control (buy) £10,000 worth of shares. Thus leveraging yourself a lot.
In effect, when opening a spread trade you are in a similar position to owning the physical. For example, buying £20/point in BP is the equivalent to being long 2000 shares. If BP was trading at 500-501:
2000 x 501 = £10,020.00.
Worth of stock. If the margin for BP is 10%, then your margin requirement is £1002.00. You will notice that different products and markets will have different margin factors.
So margin refers to the deposit or available credit needed on your account in order to open and retain your position. Different contracts have different margin requirements. The required margin on each contract is defined by the IMR (Initial Margin Required).
If for example you were to trade £2 per point of FTSE Daily Future typically the margin required is 30. So you would multiply your stake of £2 by the Margin which is £60. So to place this trade you would need £60. This amount of money needs to be maintained in the account at all times, meaning if the position was to move against you, you would have to top up your account.
Note: Leveraging yourself a lot is not recommended. With margin trading you must keep your account in credit. So if for example the price fell a little and you had bought it then you need to have this extra money in your account so that you always have the necessary 10 pct margin (there is some flexibility on this but in principle that is how it works).
Also, with margin trading you do not 'own' the shares, so you cannot vote with them. But you would get any dividends payable.
Margin trading is like trading with someone else's money. If you make money on your spread bet, you get to keep the profits. But if the market moves against you and you lose, you have to pay the company what you've lost them...
A: There are two types of margin in spread betting. One is initial margin and the other variation margin. Initial margin can be viewed as a kind of deposit 'to open the trade. The initial margin is basically the amount of money you are required to have in available funds in your account in order to open a trade, variation margin is the amount of money you are required to deposit to keep the trade open should your account run into negative. It is easiest to explain using an example:
Additional margin is required if hold open positions and exceed your credit allocation or initial deposit because of -:
a) Open position losses marked to market.
b) Realised losses.
c) Excess Notional Trading Requirement (NTR).
d) Or any combination of the above three.
The amount of margin required is the total of the above factors minus the amount deposited or the credit allocation. If you have a deposit account, when the aggregate of open position marked-to-market losses and any NTR requirements exceed the amount deposited, the
difference is immediately due to the spread betting company as margin from you.
Example: Suppose that for the FTSE rolling future the IMP (initial margin rate) is 30. This means that you are required to have 30 times your stake in your account to open a position, so let's say you want to buy £5 per point, you need £150 in your account to open this trade. This amount is taken out of your 'available funds' until the position is closed.
Once you open this position, you are then required to cover any negative balance in your account.
You have £150 in your account. You open a £5 trade on the FTSE. £150 initial margin is taken from your available funds. Your account balance is now £0. Your FTSE trade is losing £50. You are required to pay £50 in 'variation margin' to keep this position open. Let's say after 2 days your trade is losing a total of £75, you have paid a total of £75 in variation margin and you decide to close your position. You close your position with a loss of £75 and the £150 initial margin is returned to your available funds. Your account balance is £150, but you have deposited an extra £75 to cover the loss from the trade.
Spread betting companies will contact you if you owe them variation margin but it is your responsibility to monitor your trades. If variation margin is not paid they will close out your position after sometime (usually 2 or 3 days).
A: IMR is Margin so a 50 IMR means 50 times your stake.
CGSL stands for computer generated stop loss.
quoted from the Capital Spreads user guide -:
'Your automatic stop-loss is calculated as 80% of the funds on your account, or if you have sufficient funds on your account, the system will generate a stop-loss calculated at 80% of the Max CGSL (computer generated stop-loss). If your stop-loss is set at the MAX CGSL level, you can move it closer in or further away by amending your stop-loss'
A: In order to open a trade you must have a minimum amount of free capital in your spread trading account. Any spread betting provider will insist on a minimum margin requirement so as to ensure that you have sufficient funds in your account to cover any possible losses. NTR is a risk figure applied to each individual market that the provider quotes and which the provider considers being a fair reflection of the potential daily volatility applicable to the
market in question. It is thus important that, prior to trading, you familiarise yourself with the levels of NTR applied when you are considering what is the suitable size of your stake.
Example, NTR for the Dow Jones Index: So for instance if you wanted to open a spread bet for a stake at £1 per point and the Dow Jones were currently trading at 13500, with a notional requirement of 2% you would need to hold £270 in your account to open the trade.
The £270 would be the minimum amount you would need to hold in your account to open a £1 point position on the Wall Street Index. This minimum amount is referred to as the NTR (Notional Trading Requirement). In general, the more volatile the market the higher the NTR will be.
So, if you decide to buy £5 per point on the Wall Street Index when this is trading at 13500, your NTR would be £1350 given a 2% NTR [2/100 x 13500 x 5]. NTR x Stake is the minimum value you must deposit before being allowed to trade a certain stake size in a particular market.
Single shares are usually calculated based on share value x 'v%' where 'v' is an amount your provider considers as the reasonable potential movement in a given market.
Example, NTR for an Individual Stock: You buy £20 of British Petroleum Amoco at £5.60. As such this is a FTSE 100 stock so the NTR is worked out as (£20 x 560)*10% = £1,120 (£1,120 is therefore the NTR required on the spread betting account to open the trade. The typical NTR for FTSE 100 stocks is 10 % of contract value. For non-SETS stocks the NTR is a larger percentage while for companies outside the FTSE 350 the NTR may be greater than 25% of contract value.
The Notional Trading Requirement is sometimes also referred to as the Normal Margin Requirement by some providers.
The NTR can sometimes be reduced depending on where you place your stop loss; i.e. the closer you place a stop to your position the less margin is required. For instance, ODL Markets has a standard Normal Margin Requirement of 2% on the DOW JONES but this can be reduced to 0.6% depending on where you place the stop loss.
Example:
ODL Markets insists on a Minimum Margin Requirement for the Wall Street market of 0.6%.
Therefore taking the same example of the Wall Street Index, if you were to place a stop up to 0.60% (or 81 points) below 13,500 you would need to deposit a minimum of £405 for the same £5 per point position. [(13500 x 0.6/100) x 5].
A: First of all, do note that margins do vary from instrument to instrument and depend primarily on the asset's volatility and liquidity. At IG Index the deposit needed for a position is calculated differently depending on what kind of stop (if any) is on a position. There are as follows:
Guaranteed Stop
Amount per Point x Stop Distance
Non-Guaranteed Stop
Amount per Point x (Slippage Factor x Deposit) + Stop Distance
No Stop
Amount per Point x Deposit Factor
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