Understanding margins and deposits in CFD trading and spread betting

View from the dealing floor. Peter Murphy works on IG’s dealing floor in London. To find out more about spread betting and margins and deposits visit: www.ig.com/uk/spread-betting

Margins and deposits, what are they and are they different?  Well, it can sound confusing but when trading CFDs or spread bets your chosen provider will usually require you to place some cash on your account equivalent to a fraction of the full value of the CFD position or spread bet you wish to undertake.  Generally margin is required for CFDs, deposit for spread bets but though the words are different, the idea is the same.

The amount of funds required to meet the initial margin or deposit requirement for a CFD or spread bet will vary depending on the market you are trading or betting upon, and also with whom you are trading or betting.  Just as CFD and spread bet providers compete on more obvious terms such as spreads, commissions and funding charges, they will compete on levels of deposit required across their offerings.  And just like with spreads and other charges, indeed with all things in life, it isn’t always the cheapest that is best.  When considering spreads and commissions between providers it is always worth considering quality of execution.  With levels of deposit or margin a consideration should always be how safe are your funds.  So whoever you choose as your provider, it is always a good idea to satisfy yourself that your funds will be segregated and that your provider is well capitalised.

CFD and spread bet providers will usually require margin or deposit as a fixed percentage of the full value of the trade or bet in markets such as individual shares or forex, and usually as a fixed multiple for other markets.  What does this mean?  Well, if you take out a CFD or spread bet on a share where the full value of your trade or bet is £10,000 and the margin/deposit percentage is 10% then you will need to fund a minimum of £1,000 to place that CFD trade or bet.

Similarly, if you take out a CFD or spread bet on a market where the margin or deposit required is based off a fixed multiple then the initial margin/deposit requirement will be the tick or stake size x the multiple.  An example would be the FTSE 100 Index:  IG’s multiple is 25 and so if the contract size in the case of a CFD has a tick value of £10 then the initial margin requirement would be £250.  If the stake size in the case of a spread bet was £2 per point then the initial deposit requirement would be £50.  Thereafter, to maintain the CFD or spread bet on your account, most providers will require you to cover any running losses should the market move against you.

IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.