What is margin trading and how do you trade on margin?
Margin is required when trading the financial markets using leverage. Discover margin trading and learn how to take positions with us, the world's No.1 choice for contract for difference (CFD) trading.1
Start trading today. Call +971 (0) 4 5592108 or email sales.ae@ig.com. Our sales team is available from 8:00am to 6:00pm (Dubai time), Monday to Friday.
Contact us: +971 (0) 4 5592108
Start trading today. Call +971 (0) 4 5592108 or email sales.ae@ig.com. Our sales team is available from 8:00am to 6:00pm (Dubai time), Monday to Friday.
Contact us: +971 (0) 4 5592108
What is margin trading?
Margin trading is another term for leveraged trading – the method used to open a position on a financial market using a deposit (called margin).
The margin deposit is the amount of money you need to place your trade and is defined by the margin rate – which is expressed as a percentage.
Suppose you want to buy 10 shares valued at $100 each. If you were to buy these through a traditional broker, you’d need to pay the full $1,000 upfront. At a margin rate of 20%, you’d only need to put down $200, while still getting exposure to the full value of the trade.
It’s important to remember that, because this initial deposit doesn’t represent your full market exposure, you could lose more than this outlay if the market moves against your position. So, it’s vital to always take steps to manage your risk.
With us, you’ll be trading on margin using CFDs. On our award-winning platform,2 these enable you to speculate on the price movements of over 17,000 markets, including:
There are two types of margin to consider:
Initial margin
The initial margin is the minimum amount you’ll need to put up to open a position. It’s sometimes called the ‘deposit margin’, or just the ‘deposit’.
Maintenance margin
The maintenance margin, also known as ‘variation margin’, is money that you might need to deposit if your position moves against you. Its purpose is to ensure that you’ve got enough money in your account to fund the present value of the position – covering any running losses
How does trading on margin work?
Margin trading works by giving you full exposure to a market, but at an amount that’s only a fraction of the total position value. Your margin deposit is a percentage of the full position size, and the margin rate is determined by your broker. Markets with higher volatility or larger positions may require a bigger deposit.
Trading on margin amplifies both potential profits and losses. Consider the effect of an upward $15 price change on a share worth $100. With traditional investing, this will mean that you’ve earned a 15% profit.
By comparison, leveraged trading at a margin rate of 10% on the same share, you’d only pay $10 to take a position. The $15 upward price movement would, in this instance, result in a profit of 150% on your initial deposit.
However, this magnification also works in reverse, which is why leveraged trading incurs increased risk over traditional investing. If the share price of the above stock dropped by $15 – from $100 to $85 – this 15% price depreciation would mean a loss of 150% on your deposit amount.
This means that while your losses are capped at your initial capital outlay with traditional investing, the same doesn’t apply to trading on margin. With leveraged trading you could lose more than your deposit if you don’t take steps to manage your risk.
Trading on margin example
Let’s say you expect the share price of American tech giant Apple to rise due to positive news about interest rates. You decide to buy 10 shares at $170. In a non-leveraged trade, this means an upfront outlay of $1,700, excluding the relevant costs and fees. On the other hand, by CFDs, you could open your position on margin. At a margin rate of 20%, you’d only put down $340 ($1,700 x 20).
If the market moves in your favour and the Apple share price hits $204 when you sell, your profit is $34 per share, excluding the relevant costs and fees. In this case, you would’ve earned a profit of 100% on your initial margin deposit ($34 x 10 shares = $340).
Now let’s assume the market moves against your position. If the share price drops by $17, from $170 to $153, your loss on the trade would be $170. This is 50% of your initial deposit, excluding the relevant costs and fees.
What is the difference between margin and leverage?
Margin and leverage are closely related. When you open a leveraged trade, you do so by putting down a margin deposit. This deposit gives you exposure to a larger position at a fraction of your initial capital outlay. The margin rate is expressed as a percentage, for example 10%. Leverage, on the other hand, is expressed as a ratio, eg 10:1.
For a position worth $1,000 – depending on the market – your margin rate might be 10%. In this case, your deposit is $100. Because this deposit gives you an exposure 10 times its size, the leverage ratio is 10:1. Similarly, for a margin rate of 5%, your leverage ratio is 20:1.
Summary of our maximum retail margin requirements and leverage ratios*
| Retail margin | Leverage equivalent | |
Forex |
3.33% |
1:30 |
Indices |
5% |
1:20 |
Shares |
20% |
1:5 |
Commodities |
10% |
1:10 |
* These margin rates may not be applicable to all assets. See our margin rates for all markets.
Benefits and risks of margin in trading
Benefits of margin
Margin magnifies your possible profits, as any gains on your position are calculated from the full exposure of the trade, not just the margin that you put up as the deposit. Buying on margin means that you have the potential to spread your capital even further, as you can diversify your positions over a wider range of assets and markets.
Risks of margin
Although margin magnifies possible profits, it also amplifies potential losses if the market moves against your position. This is because your loss is calculated from the full value of the position. However, there are steps that can be taken to mitigate the negative side of margin, such as implementing a risk management strategy.
If you believe that CFD trading is suitable for you and you’re ready to start trading on margin, you can open a live CFD trading account with us. You can also create a demo account to see how it works before committing any real funds. Alternatively, if you’d like to buy and own shares instead of trading on margin, you can do so via our stock trading offering.
What is a margin call?
A margin call is the alert that we aim to send if the capital in your trading account has fallen below the minimum amount needed to keep a position open. A margin call can mean that you’d need additional funds to balance the account, or to close positions to reduce the maintenance margin that’s required. If you fail to do so, your broker may close your positions and any losses that you’ve incurred on these trades would be realised.
Example of maintenance margin and margin call
Let’s say you want to go long on 1,000 shares of mining giant Glencore, which is currently trading at $6 per share. This means that the full value of your position is $6,000. However, because you’re trading on leverage, you only need to put up an initial deposit of 20%. Your margin deposit is therefore $1,200 ($6,000 x 20%).
You have $1,200 in your account when you decide to place the trade, which is enough to cover your initial margin requirement. But if the position is loss-making, the money in your account will fall and you’d be placed on margin call immediately. This is because you don’t have any additional funds to cover your running losses.
To keep your position open, you’d need to top up your account to get your equity to $1,200 or above. The amount of money you’d be required to deposit is your maintenance margin. If your balance fell to $1,180, for example, you’d need to add $20 to your account.
1. Learn how margin trading works
You can access plenty of free resources on this website, including our IG Academy section. These resources can help you get a better understanding of how the financial markets work. You can also learn about how trading on margin works and familiarise yourself with the associated risks.
2. Decide how you want to trade on margin
When trading with us, you’ll be using leveraged derivatives known as ‘CFDs‘ to trade on margin. Through these financial instruments, you can track the price movement of the underlying markets.
3. Create an account
Open a live CFD trading account with us. You’ll be required to complete a short form before we verify your identity. Once this has been successfully done, you can deposit funds into your account and start trading.
If you’re not ready to trade using real money or you’d like to boost your confidence as a trader through practise, you can open a demo account. You’ll have access to $10,000 in virtual funds to trade in a simulated environment that’s based on real market conditions.
4. Find your opportunity
Choose from over 17,000 markets that are available for you to trade using margin on our award-winning platform.2 Some of these markets include shares, forex, commodities and indices.
5. Place your first trade
Once you’ve completed the above, you can decide whether you’re going long (if you think the price will rise) or going short (if you think the price will fall) and set your position size. Remember to take the necessary steps to manage your risk.
You can place your trade when you’re happy with everything on the deal ticket. When your trade is filled, you can monitor how it’s doing and close it when a certain price level is reached based on your exit strategy. You can close positions manually, or automatically via stop-loss or take-profit orders that you must set beforehand, either prior to or after opening the trade.
FAQs
What is margin trading?
Margin trading is when you put down a deposit to open a position with a much larger market exposure. This deposit is known as ‘margin’ – once you pay it, your broker will credit your account with the full value of the position.
What is a margin deposit?
A margin deposit is the amount you’ll need to place your trade. It’s defined by the margin rate, which is expressed as a percentage.
What is maintenance margin?
Maintenance margin is money that your broker might request from you if the market moves against a position that you’ve taken. The money will ensure that there are sufficient funds available to finance the present value of the position. It will also cover any running losses that you might incur.
What is a margin call?
A margin call is when the total funds you’ve deposited into your account, plus or minus any profits or losses, drops below your margin requirement. You can correct this by depositing enough funds to increase the equity in your account to be equal to or above the margin requirement, or by reducing your required maintenance margin through closing positions.
When you’re on margin call, your positions become at risk of being closed automatically in order to reduce the margin requirement on your account.
Is leverage the same as margin?
Leverage isn’t the same as margin, but they’re closely related. When you open a leveraged trade, you’ll put down a margin deposit. Leverage enables you to get exposure to the full value of the underlying asset at only a fraction of the total position size.
Try these next
Find out what to consider when choosing an online trading broker.
Explore the markets you can access and learn how to trade them with us.
Learn about the differences between CFD trading and stock trading.
1 Based on revenue (published financial statements, 2023).
2 Best Finance App, Best Multi-Platform Provider and Best Platform for the Active Trader as awarded at the ADVFN International Financial Awards 2024.
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