Margin can be compared to a mortgage, where you put up collateral when buying something more expensive than you can afford.
Margin trading enables you to amplify the potential of your trade by using borrowed funds to trade securities, also known as leveraging or gearing. This allows you to get a bigger exposure than your initial capital would.
When trading with leverage, your potential profits are bigger, but it’s important to note that the same goes for potential losses.
Margin trading at SaxoSaxo offers various financial instruments including CFDs, Futures, FX Options, FX Spot etc. You can read more about Saxo’s margin trading offers here. When you trade in such contracts, you are not buying an actual asset (e.g. with stock trading) but you are entering into a contract. At Saxo, you cannot sell stocks you do not own. However, if you wish to short a stock (sell without owning the stock), you have the option to short the CFD based on that stock. |
This article will cover the following topics:
Margin trade exampleSuppose you want to invest in Apple Inc. Please see a comparison of buying the Apple Inc. CFD, with a margin requirement of 10 %, vs. buying a stock.
As you can see from the above example, the client trading CFD only uses USD 1,700 as collateral, having the opportunity to further invest USD 18,300 (20,000 - 1,700). If the client trades a stock, he uses most of his cash, leaving only USD 3,000 (20,000 - 17,000) available for further investments. * We excluded commissions and other costs to simplify an example. |
Margin trading requirements
Margin requirements refer to the minimum amount of funds that must be in your account to open and maintain a margin trade. You can check the requirements for a specific margin product by clicking on the security > Instrument > Margin.
- Initial margin determines how much you need in your account to open the margin position.
- Maintenance margin is a continuous margin check, meaning to hold the open position you must maintain a certain amount of cash or approved margin collateral.
How does Saxo determine the margin requirements for a specific instrument?
You can read more about initial and maintenance margin on your account here or watch the video Understanding initial and maintenance margin.
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Margin trade requirements example Suppose the initial margin requirement is 2% for your CFD and you have a total exposure for the underlying asset of USD 20,000. Then 20,000 *0,02= USD 400 must be available in your account as a margin to open the trade. Some cash products can also provide collateral value for margin trading. Suppose the maintenance margin of your trade is 200 USD, then you need to have at least 200 USD in cash to keep the position open. Margin requirements are not binding and can change depending on the market conditions. For further information, click here. If your margin utilization percentage reaches 100%, all your margin positions will be stopped out. * We excluded commissions and other costs to simplify an example. Please keep your margin utilization percentage at a reasonable level to allow some market move to prevent stopout. |
When a margin trade is executed, the required amount of margin is NOT deducted from your cash balance. The margin used is reflected in Margin utilisation.
Note: If you are looking for ways to invest more in stocks/ETFs but do not want to trade in CFD we are pleased to introduce margin lending that allows you to take a loan to invest in stocks/ETFs.