Leverage and Margin
The term leverage is used when a small change in the price of the asset underlying the CFD is amplified into a bigger change so that the CFD offers an “accelerated” return. Leverage of “10%” (or 1:10) means that if the price of the underlying asset changes by 1% the price of the CFD will change by 10%. The Trading Platform shows the leverage on each instrument on the “details” link associated with each CFD. Leverage, sometimes also called “gearing”, is a technique to multiply gains, but it can also multiply losses.
Please note that as leverage increases, small price changes in the underlying asset are magnified and the amount of margin required is likely to be affected accordingly.
Customer's margin is monitored in real time and an email message will be sent should maintenance margin become more than 40% of a customer's equity, an alert by email or SMS will only be sent if this option was set-up by the user. This service is free of charge and sent through public telecommunications. The maintenance margin level is the minimum amount of equity a customer needs to maintain an open position. Should your equity fall below the minimum amount, then, Plus500 will automatically execute a margin call trade and close any open positions until your account equity exceeds the maintenance margin level requirement.
In some circumstances a Margin Call will not occur if your Equity falls below the Maintenance Margin level. This is because Plus500 may allow traders some additional time to allow additional funds to be deposited or for the position to be closed by the account-holder. If the position is still open at the end of this grace period and funds have not been added to the account, then the position or positions will be closed at the best price available on our platform at that time.
Example of how a Margin Call can occur:
You signed up and deposited $600 via credit card
- Balance: $600 (Deposits - Withdraws + P&L of closed positions)
- Available Balance: $600 (Balance + P&L of open positions - Initial Margins)
- P&L = $0 (total profit and loss of all open positions including daily premiums)
- Equity: $600 (Balance + P&L of open positions)
11:30am - you buy 10 Google Shares (CFDs) at $540
The total amount you bought is: 10*$540.00 = $5400
The Initial Margin that is needed for 10 Google Shares is 10%: $540
The Maintenance Margin that is needed to maintain 10 Google Shares is 5%: $270
If your equity falls below $270 you will get a Margin Call. Plus500 will liquidate your open positions.
- Balance: $600.
- Available Balance after you bought the Google shares is: $60 ($600 - 10%*$5400)
- P&L = $0
- Equity: $600 ($600 + $0)
12.15pm - Google shares fall to $520
- Balance: $600
- Available Balance: $0 ($600 - 10%*$5400 + 10*($520-$540))
- P&L = -$200 (10*$520 - 10*$540)
- 'Equity' is $400 (-$200 + $600)
1.10pm - Google shares fall to $490. You get a Margin Call and Plus500 liquidates your position.
- Balance: $600
- Available Balance: $0 ($600 - 10%*$5400 + 10*($490-$540))
- P&L = -$500 (10*$490 - 10*$540)
- Equity: $100 (-$500 + $600)
The reason you get a Margin Call is because your Equity is $100 and you need $270 to maintain an open position on 10 Google Shares. Therefore, Plus500 has liquidated your position. Your current balance is:
- Balance: $100 (Balance changes only when closing a position or withdrawing funds).
- Available Balance: $100 (Deposits - Withdraws + P&L of closed positions)
- P&L = $0 (no open positions)
- Equity: $100 (Balance + P&L of open positions)
In order to open a new position, available account equity must exceed Initial Margin Level requirement. The Initial Margin Level requirement is specific to each financial instrument.
To see the Initial Margin Level for a specific instrument go to the main screen of Plus500 trading platform, select the instrument you wish to view and click on ‘Details’ on the far right hand side of the screen. A popup box will appear and the Initial Margin Level in shown in the top right hand corner of the box.
In order to keep a new position open, you must ensure the account equity exceeds the total Maintenance Margin Level. Maintenance Margin Level requirements are specific to each financial instrument.
To see the ‘Maintenance Margin Level’ for a specific instrument go to the main screen of Plus500 trading platform, select the instrument you wish to view and click on ‘Details’ on the far right hand side of the screen. A popup box will appear and the Maintenance Margin Level is shown in the top right hand corner of the box.
Margin is monitored real-time and an email will be sent once the margin required becomes greater than 40% of equity.
Should additional margin not be provided, as a safety measure, positions will be closed to prevent customers from becoming indebted.