Margin Trading

This is one of the most powerful attractions of CFDs, enabling you to trade an entire portfolio without tying up large amounts of capital. When you lodge a security deposit of, say just £20,000 (or equivalent currency) in your account, you can typically trade up to £200,000 worth of shares. This is a leverage factor of 10:1 or, to put it another way, a margin requirement of 10%.

Although the normal margin requirement is 10% for CFDs in FTSE 350 shares, some of the leading shares require only 5% margin. This represents a leverage factor of 20:1. For smaller companies or if a share price is notably volatile, the margin requirement may be set above 10%.

Leverage And Risk

Trading CFDs on margin allows you to take large market positions in relation to the money you have deposited. Margin trading magnifies both your profits and your losses. You also must maintain your margin if the market moves against you and your deposited funds do not cover open position losses and margin requirements. This may mean sending additional funds at very short notice and/or reducing the size of your positions.

Many investors choose to limit their risk – or to protect a running profit or open position – by placing a ‘stop-loss’ order, which closes out their position automatically once a certain price level is reached. While Galvan Research And Trading highly recommend this procedure, we should point out that your stop-loss might be filled at a worse price than you had requested. This ‘slippage’ can happen in fast moving market conditions, or where a share opens a trading session well away from its previous close.

We are able to place your account with a market maker offering guaranteed stop loss facility* for a commission premium. Your designated broker will be happy to advise you on the stop-loss facility available and various strategies to use them.

*Guaranteed stop losses may only be available on larger, more liquid securities.

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