Leverage and Margin
Let us start from the example of what leverage is. If a trader has a $1,000 on his/her deposit, his/her Equity is $1,000 and leverage for his account is 30:1. The leverage is calculated as follows: 1,000 x 30 = $30,000. Therefore, from this example we derive that Leverage is an option for a CFD trader to buy an underlying instrument with much bigger value with his/her margin deposit. This offers a trader to have bigger trading volume and bigger return. The Required Securities (margin deposit) is shown on pop-up at trading screen for each of the instrument. Leverage is a useful method to increase profits. But Leverage works in the opposite way too – it can multiply losses. The bigger the leverage the higher the losses it can produce. It is necessary to remember that the requirements for margin increase proportionately to the underlying trade asset`s value.
What is a Margin Call?
Your margin status is checked in real time. If you have a Premium Client status in Ainvesting, we will notify you in case of a margin call. Margin calls can close your open positions if the available margin deposit is lower than margin requirements for the selected financial instrument. We will automatically perform the Margin Call and all of your currently open positions will be closed, up until the point when trader’s account equity is above the Maintenance Margin Level required.
Example of a Margin Call:
You signed up and deposited $10,000 via credit card:
- Equity: $10,000 (Deposits – Withdraws + P&L of closed positions + P&L of open positions).
- Available Balance: $10,000 (Balance + P&L of open positions – Initial Margins).
- P&L = $0 (total profit and loss of all open positions including daily Premiums).
10.20am – You buy 200 Google Shares (CFDs) at $540.00.
The total amount you bought is: 200*$540 = $108,000.
The Initial Margin that is needed for 200 Google Shares is 2%: $2,160.
The Maintenance Margin that is needed to maintain 200 Google Shares is 1%: $1,080.
If your equity drops below $1,080 you will get a Margin Call. Ainvesting will liquidate your open positions.
- Equity: $10,000 ($10,000 + $0).
- Available Balance after you purchased the Google shares is: $7,840 ($10,000 – 2%*$108,000).
- P&L = $0.
1.00pm – Google shares drop to $510.
- ‘Equity’ is $4,000 (-$6,000 + $10,000).
- Available Balance: $7,240 ($10,000 – 2%*$108,000 + 200*($510 – $540)).
- P&L = -$6,000 (200*$540 – 200*$510).
1:15 pm – Google shares fall to $495. You receive a Margin Call and Ainvesting liquidates your position.
- Equity: $1,000 (-$9,000 + $10,000).
- Available Balance: $0 ($10,000 – 2%*$118,000 + 200*($495 – $540)).
- P&L = -$9,000 (200*$495 – 200*$540).
The reason you received a Margin Call is because your equity is $1,000 and you need $1,080 to maintain an open position on 200 Google Shares. Therefore, Ainvesting has liquidated your position. Your current balance is:
- Equity: $1,000.
- Available Balance: $1,000 (Balance + P&L of open positions – Initial Margins).
- P&L = $0 (no open positions).
To open a new position, your available balance 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.
Maintenance Margin Level
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. Ainvesting always displays the Maintenance Margin level for each individual instrument.
You can view your Maintenance Margin in the My Account section on the left side of the Main Page. Please remember that your Maintenance Margin is continuously monitored in real-time.
Leverage works both positively and negatively. The bigger the leverage the greater the risk of losing the whole trader`s deposit. On the other hand, it is more likely to earn an amazingly huge revenue. Ainvesting takes special Safety Measures. If additional margin is not provided, Ainvesting automatically start closing positions on behalf of the trader.