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How does margin work?

Percentage requirements

Margin is essentially collateral for a position. Before you place a trade, you are required to make a deposit into your margin account. The amount depends on the margin percentages dependent on your jurisdiction allowing traders to take on leveraged positions with a fraction of the equity necessary to fund the trade. Margin percentages are usually estimated at 2%, 1%, or 0.5% for CIMA clients, or at 50%, 20%, 10%, 5% or 3.33% for CySEC and FCA clients.

CIMA Example :

For example, if you wish to trade $100,000, a 1% margin would mean that $1,000 needs to be deposited into your account with the remainder being provided by the broker.

While no interest is paid on this borrowed amount, if you do not close your position before the delivery date it will be rolled over and interest may be charged depending on your position (long or short) and the short-term interest rates of the underlying currencies.

In the event your position worsens and your losses approach $1,000, the broker may initiate a margin call and will ask you to either deposit more money into your account or to close out the position to limit the risk to both parties.

FCA/CySEC Example :

For example, if you wish to trade $100,000, a 5% margin would mean that $5,000 needs to be deposited into your account with the remainder being provided by the broker.

While no interest is paid on this borrowed amount, if you do not close your position before the delivery date it will be rolled over and interest may be charged depending on your position (long or short) and the short-term interest rates of the underlying currencies.

In the event your position worsens and your losses approach the risk levels, set at 50% in this case, the broker may initiate a margin call (at 100% of your equity level) and will ask you to either deposit more money into your account or trade will be forced to close out  to limit the risk to both parties.”

 

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