Margin is calculated in two ways; either as a percentage of the value of the position and or by using a fixed notional amount.
The percentage method is used on individual shares because of the number of different instruments. For example, ‘blue chip’ shares, which are deemed to be liquid (i.e. readily available to enter and exit with sufficient volume and tight spreads), carry a lower margin requirement percentage. Such examples of these are those found in the UK 100. These shares are margined at between 5 and 10 per cent.
Shares which are less liquid – and therefore more volatile – require a higher margin percentage; this controls two aspects, i) ensures that you have deposited margin which is more relative to the liquidity of the instrument and ii) limits the potential to have a large position in a share which has the potential for greater movements in price (volatility) and therefore result in larger swings of P&L. Examples of these shares are FTSE Smallcap or AIM shares and these are therefore typically margined at higher levels, ie between 10 and 20 percent.
Other financial products (indices, commodities and foreign exchange) are margined using fixed notional requirements. This makes it easier for the trader to know how much margin is required to deposit as it does not vary as the price of the instrument changes. For example, the UK 100 may only require a £40 margin deposit for each £1 stake.
How do I calculate margin for shares?
Once you have identified a share you want to trade, simply obtain the required margin percentage the Rates or Details page of the market information sheets, multiply that by the price of the share and then multiply the result by your desired stake. For example, if you have decided to trade on Rio Tinto (the mining company), which carries a 5% margin requirement, and the current price is £34.76 (3,476 pence) and you wish to trade £1 per point then your margin would be 3,476 (share price) x 0.05 (5%) x £1 (stake) = £173.80 (margin requirement).
How is margin calculated for non-share based products?
Other financial products are margined using fixed notional requirements. This makes it easy to know how much margin is required to deposit as it does not vary as the price of the instrument changes. For example, the UK 100 may only require a £40 margin deposit for each £1 stake.
Where can I find margin requirements for each market?
Margin requirements for each market we offer can be found by clicking on the information icon which is located next to the instrument you’ve chosen. Alternatively, you can refer to the provider’s Market Information Sheet.
Note: Different providers have different policies on margin. Some spread trading firms will for instance compute margin based on absolute values (thus your margin to trade £1 per point on the FTSE 100 will be x amount) while others will take a stop loss order level into account so your required margin to trade £1 per point on the FTSE 100 will be lower if you have a 25 point stop than if you don’t enter a stop at all. I know that Capital Spreads vary the margin based on the intial stop loss while GKFX utilise fixed margin (and its quite high). In practice this means that you could place a bet of up to £3 – £4 per point with just a £100 balance at Capital Spreads if you tied a 15 point stop but the maximum stake with GKFX would just be 50p (and that will take all your margin).