CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 54.2% 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.
Low margins are important to every spread betting and CFD trader.
By keeping our margins as low as we can, we make spread betting more accessible for every type of trader.
When you buy shares, you have to pay the full value of these shares before you own them. With spread betting, you only pay a small percentage of the value of the share, index, commodity or currency that you open a position on. The initial deposit you pay to open this position is called the margin.
When you trade with Spread Co, the minimum margin depends on the type of asset you’re trading on, and its price. To calculate the margin, just multiply the value of your position (your stake times the asset price) by the Margin Rate. Here are some examples of Margin Rates for different asset types.
Although you’re trading on margin, you still have access to the same potential gains you would have if you paid the full price for the asset.
Getting the same exposure to potential profit but at a lower initial cost is known as using leverage.
Let’s say you think the price of Barclays shares is going to rise. You could decide to buy £1,000 worth of shares, which would cost you £1,000, plus any broker commission. If the share price rises by 5% you can sell your shares for £1,050 and make a £50 profit.
Alternatively, you could place a spread bet to give you exposure to £1,000 worth of Barclays shares. Our margin for UK100 equities is 20% so the cost of opening this position is £200 (£1,000 X 0.20). When the share price rises by 5% you decide to close your position. Again, your profit is £50, which represents a return of 25% on your initial outlay.
Leverage is one of the key advantages of spread betting as it gives you access to investment opportunities without making a large initial outlay. But you should always remember that potential losses can also be greater than your initial outlay.
As explained above, every financial instrument has its own initial margin requirement. This is the minimum amount of unencumbered funds (that is, money not used as margin on other positions) that you must hold on your account to open a position.
But markets can move quickly, up and down. This is why it is sensible to hold additional funds on your account. If you have an open position which begins to make a loss you will be asked to add funds to your account to keep the position open. This is known as a maintenance, or variation, margin.