Spread Betting Margin

Spread Betting Margin Explained

Margin is the capital the broker sets aside from your trading account balance before you can open and maintain a trading position. This capital is expressed as a position of the full position (i.e. 0.25%, 0.5 % and so on) and acts as a good faith deposit (aka collateral) to show the broker you have the funds to hold the trading position until it is closed.

This amount when expressed as a specific amount of your overall account’s currency to open is called the required margin. The more margin you have in your account, the more leverage you can access to make trades. Required margin is also often called initial margin requirement, deposit margin and national trading requirement (NTR).

The funds that make up this margin requirement is set aside and “locked up”, meaning you cannot use this when opening a position. To unlock these funds, you need to either increase the funds in your account or increase the value of your overall trading positions. All funds in your account outside the locked amounts are known as free margin or usable margin, these funds can be used when opening and maintaining a trading position.

Spread betting requires the use of margin so that you can use leverage when making a bet. Leverage is necessary to make your bet worthwhile as without you winnings (and losses) will be limited unless you invest large amounts of your own capital.
The way margin trading works is the same as buying a home: the bank asks for a deposit or margin deposit (usually 20% of the total house value). In return for this margin, the bank will loan you the remaining value (80%) which is the leverage. This allows you to buy your home (or control the asset) with a fraction of the capital

What Is Leverage?

In spread betting, leverage is when a broker loans you extra funds to use when betting on the financial markets. These funds allow you to use less of your own capital (compared to buying the underlying market in full) but still take large enough positions to generate a reasonable return. As the broker is giving you a loan, this minimum level of margin in your trading account before opening a trading position acts as a security for the broker.

To understand how much leverage you are using, you will see it written in a leverage ratio like 1:33, which means for every £1 you deposit in margin the spread betting provider will loan you £33.

Even though you are using less capital to fund your trades, you still control 100% of the asset, and this is when leverage can get risky. Because you control $100,000 of EURUSD with just $3,300, every pip that moves up or down is amplified.

For example, a small 10 pip move on an unleveraged $100,000 position would be $100, or 0.1% movement. With the leveraged position, it would also be a $100 move, but relative to your $3,300 margin, this would be a 3% move.

This is why leverage is known to be a double-edged sword because small movements can magnify profit and losses.

How Margin Works In Spread Betting

Every spread betting financial market has different minimum margin requirements. For example, with forex majors it’s 3.33%, and for Indices like FTSE 100 it’s 5%. Margin required is always expressed as a % and the less margin required, the more leverage you can use, this leverage is expressed as a ratio. Required margin of 3.33% converts to 30:1 leverage while 5% converts to 20:1.

When you want to open a bet, the broker will show you the required margin for the position.

For example, if you want to open a spread bet on the FTSE 100 index, the broker will want you to deposit 5% of the margin as a minimum (1:20 leverage). This means for every £1 you deposit in margin, the broker will give you £20. So, if you want to bet £1 on the FTSE 100 at 7000, the margin required will be £350.

Spread Betting Margin Calculator

If you want to calculate the spread betting margin, CompareForexBrokers has a spread betting calculator that automatically shows you the margin rate required for your bet. You can access the spread betting calculator here.

Spread Betting Margin Example

In this example, you want to open a spread bet on GBP/USD by going long £10 stake per point. The spread betting provider offers you leverage but requires a margin of 3.33% of the total asset value. Because a £10 stake per point equals a one-lot position size of GBP/USD, you must deposit £3,300 in margin to enter this trade.

By depositing the margin, you now control 100,000 units worth of GBP/USD and will make (or lose) £10 for every pip.

Spread Betting Margin Requirement

With spread betting being a leveraged derivative, you will always need the margin before placing your bet. The platform will display how much margin is required to open the bet, and if you have enough funds, you can open the bet. You’ll have to deposit the funds into your account if you do not have the margin requirement. Below are the average margin requirements to open a bet:

*Note: margins and leverage are for retail bettors. A professional bettor will have higher leverage.

What Is A Margin Call?

A margin call is when your account margin falls below the minimum threshold, and the broker will request you to either deposit the funds to top up your account’s margin levels or close your losing positions to release the margin. This will happen if you have many bets open at once, with a majority of your bets losing. The threshold for a margin call is set differently for each spread betting firm, but on average, it’s around 50% of the required margin to open a trade.

To ensure you can cover potential losses, the broker will require you to have a minimum balance, known as the maintenance margin. The broker will issue a margin call if your account drops below this level.

For example, if you opened a long position in EUR/USD for £10 stake per point with a margin requirement of £3,300 and the market falls by 165 points, your margin would now be £1,650 (£10 stake per point x 165 = 1650 current loss).

So, the broker will issue you a margin call to either close the position and realise the loss, close any other open positions to free up some margin or deposit new money into the account to bring the margin above the minimum threshold.

How To Monitor Your Margin

Every spread betting platform will display your most important details in real time, including your current margin level and account exposure. For example, on the MetaTrader 4 it will show you your balance and free margin available, which you can use to open other positions.

Some brokers will alert you when you have used a percentage of your account in margin just in case you are unaware, and the broker will also inform you when your current margin has fallen by a certain threshold (25% I think) as a pre-warning before receiving the dreaded margin call.

Margin Risk

How Margin Magnifies Profits

When using margin, you are only using a fraction of the capital required to control 100% of the total asset, and this means that for every point that the asset moves, you will benefit the total amount.

Let’s say you bet on the FTSE 100 at 7000 by going long and staking £1 per point, with the margin as £350 to open the bet. If you bet on the FTSE 100 without margin, you must pay £7,000 to open the bet and for every one point it moved, you’d make (or lose) £1.

So, if the FTSE went up 50 points, you would have made £50 profit or 0.71%. However, you used margin and controlled £7,000 worth of the FTSE 100; a 50-point move also means you made £50. This means you made ~14% (£50 profit / £350 margin), making your returns 20x greater than the unleveraged position.

How Margin Magnifies Losses

Similar to how margin magnifies profits, it can easily amplify losses when the asset moves against you, exposing you to the total price movement.

Using the same example above, if the FTSE 100 moved 50 points lower on an unleveraged position, you would lose £50 (0.71% of your total value), which isn’t very much. However, when using margin, you would have lost the £50 in your £350 margin, which is a ~14% loss. While using margin, even the slightest market movements can accelerate your losses.

Trading Tools For Managing Risk And Leverage

It is essential to learn how to manage your risk when using margin to spread bet on the markets, and below, I’ve highlighted some of the ways you can manage your risk. These tools are available on every spread betting platform:

1. Stop-loss orders: Automatically exits your position after it reaches a predefined price, ensuring losses don’t exceed a set amount.

2. Take-profit orders: Lock in profits by closing a position once it reaches your set price.

3. Trailing stops: A dynamic stop loss that follows the market to lock in profit as the market moves in your favour.

4. Guaranteed stop-loss orders: This is the same as the stop-loss order but for a premium, it will automatically close out your bet at the price you requested. This prevents any slippage from the markets, especially during volatile times and could save you several points should slippage happen.

Best Spread Betting Brokers

Pepperstone – Best Overall Spread Betting Broker

We tested 10 top financial spread betting brokers and rated Pepperstone as the best overall spread broker because we highly rated their spread betting services. This includes low spreads (from 1 pips), a good selection of markets (over 60 Forex pairs), and the broadest range of spread betting platforms to choose from. You can choose from 4 trading platforms, MT4, MT5, cTrader and If you are a fan of chart trading (because you love analytical tools) TradingView, then Pepperstone is an ideal choice.

City Index – Top Spread Betting Broker With Guaranteed Stop-Loss Orders

If you want to maximise your risk management while financial spread betting, then City Index is our top pick. You will need to use the City Index platform/mobile rather than MT4 but you get the benefit of a guaranteed stop loss order for risk management and performance management tools to analyse your bets. On top of this, spreads are competitive (starting from 0.8 pips) and a decent range of free trading tools that can help you find new trading ideas.

IG Group – Great Spread Betting Broker With The Largest Range Of Markets

If you are interested in trading multiple markets, then IG Group will not let you down with its 17,000+ markets, which includes everything from forex to ETFs to options. You can bet with all products via IG Trading Platform and mobile (which includes a guaranteed stop loss), ProReadTime (for chart traders) and MT4. All these factor cements why we rated them the best spread betting company for its range of markets.

FXCM – Good Spread Betting With Metatrader 4

FXCM is our top choice if you want to spread bet on MetaTrader 4 with a decent selection of markets (42 forex pairs, 16 indices and 11 commodities) and competitive spreads from 0.4 points. The MT4 platform benefits from FXCM’s no-dealing desk style executions that ensure you bets get executed fast and with no-requotes or slippage. The MT4 is an excellent platform that has 50+ indicators and drawing tools to analyse the market and one-click executions from the chart (ideal if you are a scalper).

FxPro – Best Spread Bet Trading App

If you need access to the markets on the go, or because you only have a mobile device, then FxPro is our recommendation for the broker with best mobile trading app. The app is built with TradingView’s advanced charting tools, allowing you to use 110+ indicators and drawing tools, a user-friendly interface, and the ability to sync the charts across multiple devices.

In addition to have a top mobile app FxPro provides a decent selection of betting markets (69 forex pairs, 14 indices, 17 commodities, and 2000+ shares). You’ll get fast execution speeds with FxPro through its no-dealing desk and tiered liquidity execution.

OANDA – Best For Beginner Spread Bet Trading

If you have just started spread betting then we highly rate OANDA as a broker that is ideal for beginners. The broker has OANDA Trade (proprietary platform) that can benefit you as a beginner, such as having the lowest spread betting stake size requirements. Stake sizes start from 10p per point allowing you to bet on a live account without risking too much to start off with (excellent if you are transitioning from a demo account).

You’ll also benefit from OANDA’s low spreads that start from 0.8 pips on EUR/USD and indices from one point on the FTSE 100. The brokers offer a decent selection when it comes to popular products like forex (68 currency pairs) and commodities (20+ commodities including cross-currency pairs on gold, such as XAU/JPY).

CMC Markets – Good Spread Bet Broker For Forex Trading

We highly rate CMC Markets as it offers an extensive range of forex markets, allowing you to spread bet on 330+ currency pairs (most available in the UK). You are not limited to just forex markets either, the broker also offers 10,000+ shares, 19 commodities, and 13 indices to bet on too. One stand-out feature is the CMC NextGen platform which is a proprietary platform that has a host of tools, such as guaranteed stop loss orders, pattern recognition tools, and over 110+ indicators built into the platform. CMC Markets also offer tight spreads on their platform, starting from 0.5 pips on EURUSD and 0.5 points on US500.

Combining all the factors, CMC Markets provides an excellent environment if you want to spread bet on currencies.

Spreadex – Top Spread Betting Platform For Sports And Financial Spread Bets

Spreadex is one of a few brokers that offer financial and sports spread betting, and compared to its competitors, we rated Spreadex the best. The broker’s spread betting platform is excellent with an easy-to-use interface and automated technical analysis tools including Pro Trend Lines (automates support and resistance levels plus trend lines).

You can enjoy a selection of markets with Spreadex including 57 forex pairs, 10+ commodities, 16 indices and over 1000 shares to bet on. All the markets come with competitive spreads starting from 0.6 points on EURUSD, making it a low-cost broker. In addition to the financial markets, Spreadex offers a range of betting markets on sports and political events, including in-play spread betting, allowing you to bet on outcomes in real time.

ThinkMarkets – Best For Automated Spread Betting With MT5

If you want to automate your spread bets, then our top recommendation is ThinkMarkets with its MT5 platform. You can take advantage of MT5s improved performance allowing your Expert Advisors to run with more speed and accuracy compared to the MT4 platform. The MT5 platform also extends its product range to allow spread betting on shares, meaning you can take advantage of ThinkMarket’s solid selection of 3,500 shares available. ThinkMarkets also provides a free VPS service that can help you automate your spread bets 24-hours a day with a 99.9% uptime guarantee, so if you want your EA to run across all market sessions – ThinkMarkets is a solid pick.

You have a good selection of markets to bet on, including 46 currency pairs, over 3,500 stocks, 10+ commodities and 16 indices. ThinkMarkets lets you have small stake sizes from 10p per point (second lowest only to OANDA on our tests), making it a decent broker to start off with if you have low funds and want to try spread betting.

Markets.com – Good Spread Betting Demo Account

Markets.com is our pick if you want access to a solid spread betting demo account with a long expiration period and unlimited virtual funds. This allows you to keep the account open to track your performance and trading strategies, which is helpful while learning to spread bet. You can open a demo account with any of the platforms Markets.com offers for free, like the popular MT4 and MT5 platforms. With the demo account, you’ll be able to bet on 28 forex pairs, 1500+ stocks, 20+ commodities and 16 indices, which is a wide selection to choose from.

Spread Betting Margin FAQ

How Does Margin Work In Spread Betting?

The margin in spread betting is a small deposit you must fund to open a spread bet, which is a small portion of the total asset value. This allows you to gain control of larger positions without fully owning them, which is how leverage works. You must maintain a minimum margin to avoid margin calls.

Can You Spread Bet Without Leverage?

No, you cannot spread bet without leverage because spread betting has leverage built-in through how you stake per point on every asset. If you wish to bet on assets without leverage, you should use traditional investing methods.

What Is The Difference Between The Spread And Margin?

Understanding the concepts of spread and margin is vital for bettors as they form the basics of spread betting. A spread is the difference between the bid (sell) and ask (buy) price of the market, charged by the broker to execute your bets. In contrast, the margin is a deposit required to open a leveraged position on the market.