CFD Leverage Example and Margin Example and Examples

Margin required : It's the amount of money your cfd broker requires from you to open a position. It is expressed in percents.

Equity : It is the total amount of capital you've in your account.

Used margin : amount of money in your account that has already been used up when buying a cfd contract, this contract is one that is displayed in open positions. As a trader you can not use this amount of money after opening a trade because you have already used it & it is not available to you.

In other words, because your cfd broker has opened up a position for you using capital you've borrowed, you must maintain this usable margin for your account as a security to allow you to continue using this cfd Leverage Examples he has given you.

Free margin : amount in your account which you can use to open new trades. This is the amount of money in your trading account which hasn't yet been cfd Leverage Examples because you have not yet opened a trade using this money - this money is also very important for you as a investor because it enables you to continue holding your open trades as described below.

However, if you over use cfd trading Leverage Example, this free margin will drop below a certain percent at which your cfd broker will have to close all your positions automatically, leaving you with a big loss. Cfd broker at this point closes all your position because if your positions are left open they would lose the money you've borrowed from them.

This is why you should always make sure you've a lot of free margin. To do this never trade more than 5 percent of your cfds account, in fact 2 percent is recommended.

Difference Between CFD Leverage Example Set by the Broker and Used CFD Leverage Example

If the set cfd trading Leverage Example is 100: 1, it means that you can borrow up to 100 dollars for every dollar that you have in your cfds trading account but you do not have to borrow all the 100 dollars for every dollar you have, but you can decide to borrow 50:1 or 20:1. In this case even though the leverage option set 100:1 your used cfd Leverage Example will be the 50:1 or 20:1 that you have borrowed to make a trade.

Example:

You have 1000 dollars (Equity)

Set 100:1

CFD Leverage Example Used = Amount used /Equity

If you buy cfd lots equal to 100,000 dollars you will have used

= 100,000/1000

= 100:1

If you buy cfds trading lots equal to 50,000 dollars you will have used

= 50,000/1000

= 50:1

If you buy cfds trading lots equal to 20,000 dollars you will have used

= 20,000/1000

= 20:1

In these three cases you can see that even though the set is 100:1

The used is 100:1, 50:1, 20:1 depending on the size of cfd lots traded.

So Why not Just Choose 10:1 option as the Maximum CFD Leverage Example? Because to keep within the proper risk management rules it is even recommended that investors use less than this?

This question might seem straight forward but it is not, because when you trade you use borrowed money known A.K.A. CFD Leverage Example. When you borrow capital from anyone or a bank you must maintain a security or collateral to acquire a loan, even if the security is based on monthly deduction from your salary, same thing with CFD.

In cfd the security is known as margin. This is capital you deposit with your broker.

This is calculated in real-time as you trade. To keep your borrowed money you must maintain what is known as required capital (your deposit).

Now if Your CFD Leverage Example is 100:1

When trading if you have $1,000 & use option 100:1 and buy 1 standard lot for $100,000 your margin on this transaction is the $1000 dollars in your account, this is the money that you will lose if your open trade goes against you the other $99,000 that is borrowed, they will close the open cfd trades automatically once your $1,000 has been taken by the cfds market.

But this is if your cfd broker has set 0% CFD Margin Requirement before closing your cfds trades automatically.

For 20% requirement before closing your cfds trades automatically, then your trade transactions will be closed out once your account balance gets to $200

For 50% requirement of this level before closing your cfds trades automatically, then your trades will be closed once your account balance gets to $500

If they set 100% requirement of this level before closing out your open trades automatically, then your trade will be closed once your trade account balance gets to $1,000: Meaning the trade will close-out as soon as you execute it because even if you as a trader you pay 1 pip spread your account balance will go to $990 and the needed percentage is 100% i.e. 1,000 dollars, therefore your orders will immediately get closed.

Most brokers do not set 100% requirement, but there are those that set 100% are not suitable for you at all, choose those set 50% or 20% margin requirements, in fact, those brokers that set it at 20% are some of the best because the likely hood they closeout your trade is reduced as displayed in the examples above.

To know about this level which is calculated by your trading platform automatically - The MT4 CFD Platform will display this as "CFD Margin Requirement", This will be displayed as a percentage the higher the percent the less likely your trades are to get closed.

For Example if

Using 100:1

If cfd trading Leverage Example is 100:1 and you transact cfd lots equal to $10,000

$10,000 dollars divide by 100:1, used capital is $100

Calculation:

= Capital Used * Percent(100)

= $1,000/$100 * Percentage(100)

CFD Margin Requirement = 1,000 %

Investor has 980% above required amount

Using 10:1

If cfd trading Leverage Example is 10:1 and you transact cfd lots equal to $10,000

$10,000 dollars divide by 10:1, used capital is $1000

Calculation:

= Capital Used * Percent(100)

= $1,000/$1000 * Percentage(100)

CFD Margin Requirement = 100 %

Investor has 80% above required amount

Because when a trader has a higher cfd trading Leverage Example means that they have more percentage above what's required(A.K.A. More "Free CFD Margin") their open cfd transactions are less likely to get closed. This is the reason why traders will choose option 100:1 for their account but according to their risk management rules, these investors will not trade above 5:1.

These Levels are Shown on The Software Image Below as an Example:

MT4 CFD Platform