Margin (Security Deposit) — What it is
Margin is the amount you must deposit to open a leveraged position. Learn how margin works and what risks it carries.
Definition
Margin (security deposit) is the minimum amount of funds an investor must have in their account to open and maintain a leveraged position. It serves as collateral for the broker in case of losses.
How Does it Work?
Suppose you want to buy shares worth 10,000 PLN with 1:5 leverage. The broker requires a 20% deposit:
- Position value: 10,000 PLN
- Your deposit: 2,000 PLN
- Loan from broker: 8,000 PLN
If the shares rise by 10% → you gain 1,000 PLN (50% return on your contribution). But if they fall by 10% → you lose 1,000 PLN (50% of your deposit).
Initial vs Maintenance Margin
- Initial margin: amount required to open a position, e.g., 20% of value
- Maintenance margin: minimum level of funds to keep a position open, e.g., 10% of value
When your funds fall below the maintenance margin, a margin call occurs.
Margin Call — Request to Top Up Deposit
A margin call is a situation where the broker demands additional funds. If you don't top up the deposit within the required time, the broker will automatically close your positions — often at the worst prices.
This is one of the most stressful scenarios in investing and the main risk of leveraged trading.
Regulations in Europe
The European regulator (ESMA) limits leverage for retail investors:
| Instrument | Maximum leverage | Minimum deposit |
|---|---|---|
| Major currency pairs | 1:30 | 3.33% |
| Stocks | 1:5 | 20% |
| Cryptocurrencies | 1:2 | 50% |
| Major indices | 1:20 | 5% |
Who Uses Margin?
- Forex and CFD traders
- Futures contract investors
- Professional portfolio managers (hedging)
For beginners: Margin trading is an advanced instrument. If you're just starting, invest with your own funds (without leverage).
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