When trading using leverage you are asked to deposit a small percentage of the overall cost that would otherwise be required if you were to purchase the equivalent shares in the physical market.
Even though your outlay is small in comparison to the equivalent physical trade, you will still be exposed to the same potential profit and loss. This means your Return On Investment is magnified.
Calculating your initial margin requirement using a Share CFD example
The amount required to place a leveraged trade is known as your initial margin requirement.
- You wish to buy a 2,000 Share CFDs at $5.00
- The Share CFD has a 3% margin requirement
- 2000 x $5.00 = A$10,000.00 (this is the value of the position)
- A$10,000.00 x 3% = $300.00
- Your initial margin requirement for this trading position is A$300.00 excluding other charges such as commissions and exchange fees.
