CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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ThinkMarkets > Support > FAQs > Trading FAQs > What is margin in forex?
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What is margin in forex?

Margin is the amount of money you need to put up to open a position. Margin is defined by the leverage offered by the broker. For example, a broker that offers 100 times leverage will need 1% margin.

If you were to open a position in the USD/CAD pair with 100 times leverage, the calculation is simply: position value/100. If the position is a $50,000 position, then you are required to use $500 of margin.

If at any time your available margin is less than $500 in your account, the broker will close your position, something known as a margin call. If you open up another position, you will then need to set aside 1% of that position for margin as well.

Margin essentially allows you to borrow money from your broker. It’s a loan of sorts, and it needs to be paid back. That’s why if you go below the necessary margin for a trade, the broker closes out the position because any further exposure could be a risk of loss for them if your position goes against you.

Remember, even though you are placing a trade through the brokerage firm, the brokerage firm is sending the trade out into the markets and is responsible for squaring up the accounts and trades. They do not want to take off losses for you, and therefore will protect themselves in these types of situations.

Margin trading can be extraordinarily profitable but as it involves using leverage, you should always have plenty of margin left in your account to protect positions that you have already committed to.

For example, you don’t want to use all of your margin on a handful of positions, because a fluctuation in price could force liquidation of your positions. However, if you are mindful of both leverage and the margin required for positions, you should have plenty of extra margin, also known as free margin, in order to absorb the fluctuating profit and loss of any positions you may be involved in.

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Risk warning for retail traders: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Risk warning for qualified professional traders:  Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks associated with a professional trading account. Tax laws depend on individual circumstances and may differ in a jurisdiction other than the UK.
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