Deposit Margin Requirements (IMR)

By mosesbet · Filed Under Spread Betting Comments Off on Deposit Margin Requirements (IMR) 

What is a Margin Requirement in Spread Betting?

When customers open trades in spread betting they only need to deposit a percentage of their total positional value in order to keep the trade open.  This is known as the deposit margin requirement (also know as the minimum Initial Margin Requirements or Min IMR).  It can range anywhere from 25% of your total trade value down to as little as 1% at City Index.

In order to open a new trade, or maintain an existing trading position, you must have enough net equity in your account (Profit and Losses + Cash Balance) in order to cover the broker’s margin requirements.  If you fall below the margin requirements than you will either receive a warning before this happens asking you to top-up your account or your trade will be automatically closed.

Most spread betting platforms including CityIndex.co.uk will have a Margin Level Indicator which lets you know how much cover you have with your current open positions.  If the Margin Level Indicator is higher than 300% for example than it means you have 3 times the amount of funds needed above your margin.  If on the other hand your margin level falls below 80% than you will receive a margin alert.

The massive advantage of opening trades with low deposit margin requirements is that you only need to keep your account funded with a small percentage of the total amount that you are risking.  For example, with a deposit margin of just 10% which is normal for most spread betting brokers you would only need to deposit £100 in your account to hold positions worth up to £1,000.

The other benefits of margin trading it that it gives you greater leverage.  If you make a profit from your trade than it means you didn’t have to pay the full cost of investment.  On the other hand, the downside of margin trading is that you can end up losing far more in a opening trade than your initial deposit.  This is why beginners should be very careful when spread betting on low margins.

How is the Margin Requirement Calculated?

The deposit margin differs both for different spread betting platforms and depending on the type of financial instrument you’re trading on.  For example, Capital Spreads and Tradefair currently offer a 3% deposit margin whilst City Index offers an impressive 1%.  City Index also offers twice as many markets to their customers as Tradefair Spreads which is why I’m such a huge fan of them.

The margin deposit requirement can generally be calculated in two ways: percentage or a factor.

Deposit Margin Expressed as a Percentage: If the deposit margin requirements are expressed as a percentage, e.g. 10%, than you calculated the total value of the trade and divide by ten.  For example, if you want to buy 1,000 shares of XYZ at £1 per point (a total of £1,000) than the deposit margin requirement of 10% would be £100.  This means you would need to fund your account with at least £100 in order to open the trade.

Deposit Margin Expressed as a Factor: Most spread betting firms including Capital Spreads and IG Index will express the margin requirement as a factor.  The factor is normally around 200 – 400.  For example, if you want to open a trade on Company B for £5 per point and the deposit margin factor was 200 then you would need at least £1,000 in your account to keep open the trade.

In conclusion, the best spread betting brokers should always have the lowest deposit margin requirements. Low deposit margins are excellent for traders because they allow you to open trades with a lower initial deposit and starting capital.  This is particularly useful for beginners.  Low margin requirements allow you to take on trading positions of greater value than regular share trading.

 

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