In spread betting you don’t have to invest a full amount for any deal. If you know about share trading, then you know that you will have to pay the full amount of shares upfront to receive all the benefits, but spread betting is not like that. Share trading seems simple but it is actually inconvenient and expensive especially for beginners.
However, in spread betting you can spend just a fraction of the share value to open your trading account. Yet, this process is also not risk-free just like share trading. You might be investing a fraction of the share value yet you are exposed to the full share value. This means that you can lose more than what you initially put in. This is where well-known services like ETX capital comes to your rescue by supporting you through every step of betting.
What Are The Margins?
Margin is another way to gain leverage which refers to the value of the funds that are needed to open your account and to maintain your spread bet. This usually comes in two forms.
- Initial Margin: It is the minimum amount of money you need to invest for your position. It is sometimes known as the ‘deposit’ as it is the deposit margin. If the market is more volatile, your initial investment will be higher.
- Maintenance Margin: This is any amount of additional money to maintain your position as open. It is the amount of equity with the position. It is the total amount of money invested by adding or subtracting the profits and loss respectively.
Suppose the market price goes up, then the maintenance margin also rises and you need to invest more money to continue equity to fund the present value of the position. This also includes the running losses.
Suppose the market price goes down, then you need to close the positions to reduce the amount of funds required without allowing the account to go towards negative value.
What Are The Requirements of Maintenance Margins?
The maintenance margin depends on:
- The market you will invest in
- Size or value of your position
- Number of stops in place
Guaranteed stop margin: It is the margin for the spread bet to be equal to your risks.
Non-guaranteed stop margin:
It is considered as best as these are liable to slippage. These are calculated as the percentage of your position which completely depends on the market. For Forex bets the percentage is usually higher while for shares it is about 30%. You can check the percentage with your service providers – it is worth noting that ETX capital is considered among the best.
Calculating The Margin
While spread betting with shares, IG or Forex, the margin is generally calculated as the percentage of the position. The percentage varies based on the market. For example, the Tier 1 Forex rates are around 0.5% and it may increase to 7.5% for bitcoins.
To conclude, it is best to understand the factors influencing the spread betting returns for better returns from the market. For further information please visit: www.etxcapital.co.uk