Security Deposit

When investing in Forex and CFDs, a sufficiently high deposit is required to be able to open a position at all. It’s important to remember that a security deposit is not a transaction cost. The entire amount is returned to your account when the position is closed. The return of the security deposit depends on some factors, such as the type of market or the main account.

Here are a few key points to keep in mind when it comes to leverage:

• When opening a position, you will need a certain amount of additional capital called a margin.
• The margin is not the transaction cost, but capital frozen for the time the position is opened, which is then returned to the account when the position is closed.
• CFDs are leveraged products, which means that you only need a part of the transaction value for the same market exposure.
• Margin is the margin required to maintain any open position on your account. For example, with a leverage of 1:30, you only need 3.33% of the nominal value of the margin.

What are the benefits of a margin?

Leveraged investing give traders the opportunity to generate large profits with the initial involvement of little capital. This means that if the market is moving in your favour, your potential profit may be much higher than in the case of traditional investments, e.g. company shares.

Are there any downsides?

Just as potential profits can be increased, so can be potential losses. If the market does not move in your favour, losses can be much greater than in the case of traditional, non-leveraged investments.

To sum up:

• Investing with leverage allows you to trade very large capital, with a relatively small involvement of your own capital.
• Leverage allows you to open a much larger position than with a physical transaction.
• This means that when the market moves in your favour, the returns on your investments are much higher compared to the initial deposit amount, while the market not moving in your favour would result in much higher losses than those in traditional investing.

However, it’s important to remember that the higher the risk profit, the greater the risk of loss. If you don’t learn to manage your risk, your losses may be much greater than with traditional investing.

Example

Let’s suppose you want to open a position on EURUSD and that the financial leverage on this instrument is 1:30. This means that you only need 3.33% of the full transaction value as margin to be able to open this position. The built-in investment calculator on the xStation platform can instantly calculate the value of the required deposit, which depends on the size of the selected position, and the financial leverage of the given market.

To open and maintain positions, sufficient free funds are required on your main account to cover your margin requirements each time. Free funds constitute the capital that you have to use to open new transactions or cover any negative market movements in already open positions.

With XTB, the margin level is 50%. This level is calculated by dividing your capital by the required margin, and then multiplying it by 100%.

On either of our trading platforms, xStation 5 or MT4, you can find an indicator called margin level. When this indicator drops below 50%, your position with the highest loss will be automatically closed. It’s a built-in mechanism that protects you from incurring even greater losses. To avoid closing your position due to exceeding the limit level, you must maintain a higher margin level by increasing the margin on the main account.