Margin requirement

For each of your open CFD positions (trades), Spread Co will require you to dedicate trading resources equal to a percentage of the position size. This funding is called a margin requirement.

Because you do not have to pay the full amount of your position size, CFDs enable you to increase the amount of exposure to an instrument through leverage. This means you can trade a larger position than if you simply traded with the funds held in your account. Leverage has the effect of magnifying the profits or losses on your trading capital. The maximum amount of leverage available to you varies with the instrument you are trading.

Margin rates and position size

The margin requirement for a position depends on two variables:

1. The Margin Rate
   Margin rates vary by instrument and are always expressed as a percentage. For example, the margin rate for Microsoft CFDs could be 5%.
2. The Position Size
   The Position size = contract price x number of contracts

Calculating margin requirements

The margin requirement for a position is calculated by multiplying the relevant CFD position size by the applicable margin rate:

Margin requirements fluctuate

Margin requirements fluctuate along with position size. As the price of the Microsoft (MSFT) CFD rises from $25.00 to $30.00, the position size rises from $2,500 to $3,000 and the margin requirement simultaneously rises from $125 to $150. Likewise, as the price of the Microsoft (MSFT) CFD falls to $20.00, the position size falls to $2,000 and the margin requirement simultaneously falls to $100.

Account valuation

Your account valuation is the approximate value of your account if you were to close and match all of your positions and withdraw all of your funds.

Trading resources

Your trading resources are those financial resources that you have not used for filling margin requirements. Your trading resources are what you use to post margin for new positions.

Margin call

If the amount in your account at any one time is lower than the amount of margin required for all your open positions at such time, Spread Co may issue a margin call. A margin call may be delivered via email, telephone or text message and is a request for you to either top up your account with additional cash (this raises your account valuation) or close part or all of your open position(s) (this lowers your margin requirements). Margin calls are intended to let you know that you have insufficient funds to support your open positions and that, in order to support the positions, you need to introduce more funds or reduce the positions so that you have sufficient margin. By responding quickly to margin calls, you may prevent liquidation from taking place.

Liquidation

Liquidation is the forced closure or reduction of your open positions. Liquidation occurs when your resources fall significantly below the level required to maintain your margin requirements.