CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. 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 financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
Maintenance margin definition
What is a maintenance margin?
Maintenance margin, also known as variation margin, is the amount of capital that must be available in your account to keep a leveraged trade open. It ensures you always have enough money to fund the present value of the position and cover any running losses.
To keep a leveraged position open, a certain amount of funds must be paid and kept in your account. If your position starts to make a loss, your deposit may no longer be enough to keep the trade open. In this case, your broker will ask you to put up additional capital to balance your account. This is known as a margin call.
Maintenance margin vs initial margin
The maintenance margin is one of two types of margin required to make a leveraged trade. The other is your initial margin, which is the deposit you use to place your trades.
So, the initial margin opens the position, and the maintenance margin keeps your account funded and your position open.
Example of maintenance margin
Let’s say you want to go long on 100 shares of company ABC, which are currently trading at $500. This means that the full value of your position is $50,000. However, because you’re trading on leverage, you only need to put up an initial deposit of 20%. Your margin deposit is therefore $10,000 ($50,000 x 20%).
You have $10,000 in your account when you decide to place the trade, which is enough to cover your margin requirement. But if the money in your account falls – as a result of your position losing money – you would be placed on margin call immediately. This is because you do not have any additional funds with which to cover your losses.
To keep your position open, you would need to top up your account to get your balance above $10,000. The amount of money you’d be required to deposit is your maintenance margin. If your balance fell to $9800, for example, you’d need to add $200 to your account.
However, if the capital in your account fell by 50% – to $5000 – your account would be triggered for position closure.
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