What is the required margin on Plus500?
When you start trading with Plus500, the margin is very important. If you do not pay attention to the required margins, you can lose the full amount of your investment. Please read this article carefully so that you understand how margins work with Plus500.
What is margin trading?
On Plus500 you can trade on a margin. This means that you do not have to deposit the full amount of the investment. Using leverage allows you to open larger trades with a smaller amount. This works with a leverage. When you deposit $100, you can invest on Plus500 with a maximum amount of $3000. Do you want to learn more about investing with leverage on Plus500? Then read this article first.
When you deposit $100 and trade with $3000, the broker does not want to lose $2900 if your trades are not going well. That is why the broker uses a margin. In the rest of the article we will discuss how margins work.
What is the initial margin?
When you open a trading position, the initial margin matters. The initial margin indicates the percentage that must be in your account to open the trade. For each CFD you can find information about the margin percentage.
For example, when the initial margin is 10%, you must deposit 10% of the value. If you want to open a CFD trade for $1000, this means that you need at least $100 on your account.
A CFD share can cost $100. When you apply a margin of 10% the position would consist of 10 CFD shares with a value of $1000. Your winnings and losses on the position are then deducted from the $100 you deposited yourself.
What is the maintenance margin?
After you open a position, the maintenance margin is important. The maintenance margin indicates the amount that must be in your account to keep the investment open. When the maintenance margin is 5%, you must have 5% of the value of the trade in your account.
In the example in the previous paragraph you opened a CFD trade of $1000. In this case, you will always need to have $50 in your account to keep the position open. Let’s see how this works in practice.
You have used an initial margin of 10%. This means that your trade is worth ten times more than you invested yourself. A 1% rise or fall in the CFD will lead to a 10% rise or fall of your account balance.
When the maintenance margin is 5%, your investment may not fall more than 5%. After all, your share cost $100, but because of the margin you trade in 10 CFD shares of $100 each. With a decrease of 5% you would lose $5 in all 10 CFD shares which means you lose a total of $50. When you lose $50 you would not meet the requirements for the maintenance margin any longer. When this happens, you can decide to deposit money. If you do not do this, you may have to deal with a margin call.
Watch out for a margin call
If your account balance falls below the maintenance margin, you can get a margin call. The broker will then automatically close your position or positions to avoid a greater loss. With Plus500 it is not possible to get a negative balance. However, with a margin call you can lose your entire account balance with just one single trade.
It is therefore important that you understand the risks of trading on margin. It is always advisable to set a stop loss. With a stop loss, your position is automatically closed at a certain price. By setting a stop loss you avoid losing your entire account balance on one trade.
It is also important to leave some space to breathe. When you immediately put your full initial margin on a trade, there is little room for the price to drop first. Therefore, first analyse how much you think the price can move in the other direction. By making less use of the margin, you reduce the risk of your trades.
Are you approaching the maintenance margin and do you believe that the price will still move in the right direction? Then you can always decide to deposit more money. By depositing money, you can once again meet the margin requirements of your trades.
How does it work with multiple trades?
With a trading account you can of course trade in several CFDs at the same time. It is always important to continue to meet the margin requirements. For this, you can always look at the balance bar within the Plus500 software.
In the balance bar you can immediately see how your account is doing. The maintenance margin indicates the part of the money in your trading account that you need to keep your positions open. When a trade is profitable, you can also use this profit to meet the maintenance margin requirements.
At the same time, loses on one trade can cause all of your positions to close. It is therefore important to keep a close eye on the margin requirements of all your trades.
The available amount is the amount that you can still use to open new trades. You can use this amount to meet the required initial margin for a trade.
Trading with margin: dos and don’ts
Trading with margin can be interesting for traders who want to speculate. You can achieve a greater return with a smaller amount in the shorter term. At the same time, the chance of loss also increases considerably. If you make the wrong decisions, you can even lose your full investment on just one trade.
It is recommended to practice with a free demo first. That way you can master trading with a margin before you start trading with your own money.