Two numbers decide whether a leveraged position survives the week: the margin you need to open it, and the margin you need to keep it. Traders mix them up constantly, and the confusion tends to surface at the worst possible moment — when a position is running against them and the platform starts flashing warnings. Get both straight and position sizing becomes far less stressful, because you know exactly how much room you have before your broker steps in.
Margin is a deposit, not a charge
When you open a leveraged position — a CFD, a spread bet, or a rolling spot FX trade — your broker sets aside part of your account balance as collateral. That money is not a fee and it is not spent. It stays yours and returns to your available balance when the position closes. Its job is to cover the broker against the possibility that the market gaps and your losses outrun your deposit.
UK retail accounts also carry negative balance protection, so you cannot lose more than your account balance on a standard retail CFD or spread bet account. Margin requirements sit alongside that protection, not instead of it. Overnight financing charges are something else entirely, and they quietly reduce your equity the longer you hold.
Initial margin: the entry ticket
Initial margin is the amount your broker requires before a position can be opened. It is usually expressed as a percentage of the position's notional value, and it is the figure that determines your buying power.
Suppose you want to trade an index CFD priced at 8,000 with a value of £1 per point. Your notional exposure is £8,000. If the initial margin requirement is 5%, you need £400 set aside to open one unit. That 5% is the same thing as 20:1 leverage — leverage is simply one divided by the margin rate.
Now the buying power question. With £2,000 in the account and a 5% requirement, the theoretical maximum is £40,000 of notional exposure, or five units at £8,000 each. The arithmetic is clean; the consequences are not. Five units means £5 per point, so a 100-point move against you is a £500 loss — a quarter of the account — before a margin call is anywhere in sight.
Maintenance margin: the line you must not cross
Maintenance margin is the minimum equity that must stay in the account while the position remains open. Equity means your balance plus or minus unrealised profit and loss, so it moves with the market in real time.
Maintenance margin is normally a fraction of the initial requirement — often about half, though it varies by broker and instrument. Using the same example with a 2.5% maintenance requirement, that is £200 per unit, so five units need £1,000 of equity to stay open.
With £2,000 of equity and a £1,000 requirement, you have £1,000 of headroom. At £5 per point, that is 200 points of adverse movement: the index could fall from 8,000 to roughly 7,800 before your equity meets the maintenance level and the broker starts talking to you about a margin call. Five units in the wrong direction and that buffer disappears quickly.
How the two margins shape your buying power
Buying power is not a fixed figure sitting in your account. It is what remains after the broker has accounted for everything below.
- Unrealised losses on open positions. A losing trade drags equity down, which shrinks the room available for anything new.
- Margin already committed. Open positions lock up initial margin until they close.
- Pending orders. Some brokers reserve margin for resting orders, particularly guaranteed stops.
- Instrument-specific leverage caps. Under FCA rules, retail leverage on CFDs is capped at 30:1 on major currency pairs, 20:1 on non-major currency pairs, gold and major indices, 10:1 on other commodities and minor indices, 5:1 on individual shares, and 2:1 on cryptocurrencies. Those caps set the minimum initial margin, not a sensible maximum to use.
- Account currency and conversion. Trade US shares or a German index from a sterling account and the broker converts the notional into pounds, so the exchange rate becomes part of your exposure.
What happens when maintenance margin is breached
A margin call is a warning, not a punishment. Your broker is telling you that equity has fallen to the maintenance threshold. You then have a short window to act: add funds, or reduce and close positions to free up margin.
Ignore it and the position gets closed for you. For retail CFD and spread bet accounts in the UK, the FCA requires firms to close positions when equity falls to 50% of the required margin — the margin close-out rule. Many brokers apply their own stop-out level, and it will normally be no more generous than that 50% floor. Read your firm's terms, because the exact trigger lives in the client agreement, not in a general guide.
Two things catch people out. First, close-outs happen at market price, and in fast conditions that price can be some distance past the trigger, especially through a weekend gap. Second, a cluster of correlated positions — long a US index, long a European index, long oil — behaves like one oversized position when sentiment turns, and every one of them can hit its maintenance threshold together.
Working out your buffer before you click buy
Do the arithmetic in this order and you will rarely be surprised.
- Calculate the notional value of the position you are considering.
- Apply the initial margin rate to get the deposit required.
- Apply the maintenance margin rate to get the equity you must keep.
- Convert the gap between your equity and the maintenance requirement into points or pence of adverse movement.
- Compare that number with a realistic bad day for the instrument, not an average one.
If the buffer looks thin, the trade is too big — whatever the platform says about available buying power.
Practical habits that keep both margins comfortable
Size positions off the maintenance requirement rather than the initial one. The initial figure only tells you whether you can open; the maintenance figure tells you how long you can stay. Aiming to use half or less of your available margin leaves room for the ordinary swings that a maximum-size position cannot absorb.
Use stops, and place them where your trade idea is wrong rather than where your margin happens to allow. Set equity alerts so a warning reaches you before the platform's does. Keep some cash in reserve so a margin call is an inconvenience rather than a forced liquidation, and remember that overnight financing nibbles away at equity on anything held for weeks.
Finally, check your broker's margin schedule for each instrument you trade. Requirements shift with market conditions and around major events, and the difference between two similar products can be wider than you expect. If you are unsure how leverage fits your wider finances, speak to a regulated financial adviser — margin trading can lose money quickly and is not suitable for everyone.
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