If you’re new to CFD trading, you may have come across the term “margin”—but what does it really mean, and why is it so important?
Understanding margin is crucial because it affects how much capital you need to open a trade and how much risk you’re exposed to.
In this guide, we’ll explain what margin is in CFD trading, how it works, and what South African traders need to watch out for.
What Is Margin?
Margin is the amount of money you need to deposit with your broker to open and maintain a CFD position. It’s essentially a good faith deposit that acts as collateral.
Instead of paying the full value of the trade, you only need to deposit a percentage of the total position size.
This allows you to control larger positions with a smaller amount of capital—a concept known as leverage.
Example of Margin in Action
Let’s say you want to open a CFD trade on gold worth R100,000.
- If your broker requires 5% margin, you only need to deposit R5,000.
- The remaining R95,000 is effectively “borrowed” from the broker via leverage.
If the trade goes in your favour, your returns are calculated on the full R100,000 position—not just the R5,000 margin. However, the same applies to losses, which is why risk management is key.
Key Margin Terms You Should Know
1. Initial Margin
The minimum amount of capital required to open a position. This is set by your broker based on the asset and the level of leverage offered.
2. Maintenance Margin
The minimum amount you need to keep in your account to keep a position open. If your account balance drops below this level, you could face a margin call.
3. Margin Call
This is a warning from your broker that your account no longer has enough funds to support your open positions.
If you don’t add funds or close trades, your broker may automatically close positions to limit further losses.
4. Free Margin
The amount of available funds in your account that you can use to open new positions or withstand market fluctuations
How Is Margin Related to Leverage?
Margin and leverage are two sides of the same coin.
- Leverage is expressed as a ratio (e.g., 1:10, 1:50, 1:100).
- A leverage of 1:20 means you only need to deposit 5% margin to open a trade.
The higher the leverage, the lower the margin requirement, but also the greater the potential risk. In South Africa, leverage limits may vary based on whether the broker is FSCA-regulated and the asset class being traded.
Benefits of Trading on Margin
- Lower capital requirement to access larger positions
- Increased potential returns on smaller investments
- Diversification—use your capital to open multiple positions at once
Risks of Margin Trading
- Magnified losses: Losses are based on the full position size, not just the margin.
- Margin calls: If the market moves against you, your account can be wiped out quickly.
- Automatic liquidation: Open positions can be closed without warning if your account equity drops below maintenance margin.
This is why stop-loss orders and position sizing are so important when trading CFDs with margin.
Margin Requirements for South African Traders
When trading with FSCA-regulated brokers, margin requirements are often clearly stated before you place a trade. These may vary depending on:
- The asset class (forex, stocks, crypto)
- Market conditions and volatility
- Regulatory changes
Always check the margin percentage and calculate your true exposure before opening a trade.
How to Manage Margin Effectively
- Use low to moderate leverage, especially when starting out
- Never trade your entire account balance—leave room for volatility
- Monitor your account equity and free margin regularly
- Practice on a demo account to understand how margin and leverage work together
Final Thoughts
Margin in CFD trading is a powerful tool that allows you to trade larger positions with less capital—but it also introduces greater risk.
Understanding how margin works, calculating your exposure, and managing your risk are essential steps for any serious trader.
Whether you’re trading forex, indices, or stocks in South Africa, learning how to use margin wisely can improve your trading discipline and protect your capital.
