Leverage is the mechanism whereby your CFD margin deposit controls an asset of multiple times greater value, offering a magnified trading impact and accelerated return. For example: You deposit $1,000 and your Equity is $1,000 and the leverage offered is 1:30 (or lower). Your leveraged amount is 1,000 x 30 = $30,000. The Required Securities (margin deposit) is displayed on each pop-up trade screen. Leverage is a technique used to multiply gains; however leverage can also multiply losses. Remember, the high degree of leverage can result in substantial losses.
Note that margin requirements usually increase proportionately to the value of the underlying trade asset.
Your Margin is monitored in real time, providing you with the benefit of knowing where you stand at all times. The Maintenance Margin level is the minimum amount of equity needed to maintain an Open Position. Should your equity fall below the minimum amount, Xtrade will automatically execute a Margin Call trade and close any open positions until your account equity exceeds the Maintenance Margin level requirement.
Example of a Margin Call:
Say you deposit $25,000 in your CFD account. Your account will appear as follows:
There are some other important concepts that you need to understand when reading this example.
The first is Initial Margin. Initial Margin is the amount of margin required to be posted to your account in order to open a position. In this example, the Initial Margin requirement is 20% (as required by the ASIC Rules).
The second important concept is Maintenance Margin. This is the minimum amount of Equity that must be available in your account to maintain your open positions and avoid it or them being automatically terminated under the ASIC Rules. Maintenance Margin is fixed at 50% of the Initial Margin. If your Equity goes below the Maintenance Margin threshold, Xtrade is required by law to close-out your positions until your Equity returns to above the Maintenance Margin threshold, or until all of your open positions are closed out, whichever occurs first.
**In our platform we call Initial margin Required Securities
1.00pm - Google shares drop to $560 per share
1:15 pm - Google shares fall to $520 per share
Following this liquidation, your balance is:
The reason you received a Margin Call is because your Equity is $11,000 and you need $11,800 to maintain an open position on 200 Google Shares. Therefore, Xtrade has liquidated your position. Your current balance is:
To open a new position, your available account equity must exceed the trade's initial margin level requirement. Margin levels vary among the different financial instruments.
You can view your required margin total under the My Account bar on the left side of the trading platform page. Please be aware that your initial margin is continuously monitored in real-time.
To keep your new position open, the equity in your account must exceed the total Maintenance Margin Level. The Maintenance Margin Level requirements are specific to each financial instrument. Xtrade always displays the Maintenance Margin level for each individual instrument.
You can view your Maintenance Margin under the My Account Bar on the left side of the Main Page. Please remember that your Maintenance Margin is continuously monitored in real-time.
For financial safety, and also in line with our regulator's requirements, if additional margin is not provided, Xtrade will automatically close out positions on your behalf. Remember, the higher the leverage the higher the risk of losing your deposited capital. Leverage can work both for you as well as against you.