Investors in US brokerage accounts owed $1.48 trillion in margin debt at the end of September, according to FINRA, a little under June’s record of $1.50 trillion. With margin trading explained in plain terms, that figure is a loan, money a broker lends to buy shares the investor then owns. Margin on a CFD is a different arrangement. It’s a deposit held as collateral while the position is open, and every gain or loss is worked out on the position’s full value. The asset itself never changes hands. Following one share CFD through a falling price shows where the margin call and the automatic close-out sit, in dollars.
Quick answer: Margin trading means holding a position worth more than the money you put down. A stock margin account lends you part of the share price. With CFDs, margin is a deposit set as a percentage of the position’s value, and your result is worked out on the full position. Leverage increases both gains and losses, and a margin call comes when equity falls toward the margin required.
See How CFDs Work Before You Trade
Our CFD guide covers long and short positions, trading costs and how a CFD differs from owning the asset.
Two Kinds of Margin Trading Explained
Margin in a Stock Brokerage Account
The FINRA figure measures borrowing. In the US, Regulation T lets investors borrow up to 50% of the purchase price of marginable shares, and FINRA requires a deposit of at least $2,000, or the full purchase price if that’s lower, before any borrowing starts. FINRA rules then require the investor’s equity to stay at 25% or more of the shares’ market value, and many firms set 30% to 40%.
The investor owns the shares and pays interest on the loan. The SEC’s investor bulletin warns that a broker may be able to sell your securities at any time without consulting you first.
Margin on a CFD
A CFD margin is a deposit, set as a percentage of the position’s full value, and it stays in your account as collateral while the position is open. You hold a contract that settles the change in price, and the asset never changes hands. Positions held overnight usually carry a financing charge worked out on the full position value [CONFIRM: SelfMSF financing rates].
| Stock margin account (US) | CFD margin | |
|---|---|---|
| What your money does | Part-pays for shares, with the broker lending the rest | Held as a deposit against the position |
| Ownership | You own the shares | You trade the price, with no ownership |
| Starting requirement | 50% of the purchase price under Regulation T | Set by market, such as 20% for shares under UK and EU retail rules |
| Ongoing cost | Interest on the loan | Overnight financing on the full position value |
| When equity falls | Maintenance call at 25% or the firm’s higher level | Margin call, then close-out at 50% of required margin under UK and EU retail rules |
Figures from the SEC’s Investor Bulletin on margin accounts and the FCA’s CFD rules.
How Margin Is Calculated on a CFD
Margin required is the position value multiplied by the margin rate. A CFD on 500 shares at $40 is a $20,000 position, and at a 20% rate it needs $4,000 of margin. A 20% rate is the same as leverage of 5:1, and leverage increases both gains and losses, because every price move is applied to the full $20,000.
Regulators in the UK and the EU set minimum margin rates for retail traders by market, based on how volatile each one tends to be.
| Market | Maximum retail leverage | Minimum margin rate | Margin on a $20,000 position |
|---|---|---|---|
| Major currency pairs | 30:1 | 3.33% | $667 |
| Non-major pairs, gold and major indices | 20:1 | 5% | $1,000 |
| Other commodities and non-major indices | 10:1 | 10% | $2,000 |
| Individual shares | 5:1 | 20% | $4,000 |
| Crypto | 2:1 | 50% | $10,000 |
Limits from ESMA’s product intervention measures, which the FCA later made permanent in the UK.
Crypto carries the highest rate because it’s highly volatile, with prices that can swing several percent in a day. The margin rates on SelfMSF depend on the market, your account and where you live [CONFIRM: margin rates by market, account and region].
The Four Numbers That Track Your Margin
A margin account usually shows four figures [CONFIRM: account metrics shown on SelfMSF]:
- Equity: your cash balance plus or minus the gains and losses on open positions
- Used margin: the deposit your open positions are holding
- Free margin: equity minus used margin, which is what’s available for new positions
- Margin level: equity divided by used margin, shown as a percentage
Margin level is the figure that decides when a margin call comes. It falls as losses reduce equity, and it rises as gains add to it.
Margin Trading Explained in Dollars With One Position
The figures in this example are for illustration. You have $6,500 in your account and open a CFD buy position on 500 shares of a company at $40, a $20,000 position. At a 20% margin rate, used margin starts at $4,000. Here the requirement is recalculated at the current share price, the margin call comes at a 100% margin level and the close-out at 50% [CONFIRM: SelfMSF margin call and close-out levels].
| Share price | Gain or loss | Equity | Used margin | Margin level |
|---|---|---|---|---|
| $42 | +$1,000 | $7,500 | $4,200 | 179% |
| $40 | $0 | $6,500 | $4,000 | 163% |
| $37 | -$1,500 | $5,000 | $3,700 | 135% |
| $33.75 | -$3,125 | $3,375 | $3,375 | 100%, margin call |
| $30 | -$5,000 | $1,500 | $3,000 | 50%, close-out |
Calculated with the 50% close-out level in the FCA’s CFD rules. Share figures are illustrative.
A 5% rise in the share price adds $1,000, about 15% of the account. A 25% fall closes the position with a $5,000 loss, about 77% of the account. The $4,000 deposit decided how large a position the account could hold, and the full $20,000 decided the result.
When the Price Gaps
Say the company reports results after the close while the shares sit at $34, and they open the next morning at $28. The close-out happens at the first available price, and the loss is $6,000, leaving $500 of the original $6,500. Retail CFD accounts in the UK and the EU carry negative balance protection, which stops an account falling below zero, and Australia requires the same under ASIC’s CFD product intervention order [CONFIRM: negative balance protection on SelfMSF].
What Happens at a Margin Call
A margin call means your equity has fallen close to the margin your open positions need. You can add funds or close part or all of the position, and either step brings equity and used margin back into line. If losses continue to the close-out level, positions are closed automatically at the current market price. UK rules require providers to close a retail customer’s position when their funds fall to 50% of the margin needed to keep positions open.
The pressure of a margin call tends to push people toward choices they wouldn’t make with a clear head, like adding to the losing position. Our article on trading plans under pressure looks at why that happens, and the Risk Management guide shows how traders size a position around a stop before they open it.
The Cost of Holding Over Time
Overnight financing is worked out on the full position value. On the $20,000 position, a combined annual rate of 6% would come to about $3.29 a night, or close to $100 over a month [CONFIRM: SelfMSF financing rates]. The Academy guide walks through how that charge builds on a longer trade.
Key Takeaways
- A stock margin account lends you money to buy shares, and a CFD margin is a deposit against a position you don’t own.
- CFD margin is the position value multiplied by the margin rate, and the rate varies by market.
- Leverage increases both gains and losses, because results are worked out on the full position value.
- Margin level, equity divided by used margin, shows how close an account is to a margin call or close-out.
- A price gap can close a position well past the close-out level, and the loss follows the full position size.
Frequently Asked Questions
Is margin trading the same as borrowing money?
In a stock margin account, yes. Your broker lends you part of the purchase price, charges interest and holds your shares as collateral. With CFDs, your margin is a deposit set as a percentage of the position’s value, and you don’t buy the asset. Positions held past the daily cut-off pay overnight financing on their full value.
What happens if you don’t meet a margin call?
Your positions can be closed automatically once losses take your equity down to the close-out level. Before that, adding funds or reducing positions lifts your margin level. At close-out, positions are closed at the current market price and the loss comes out of your balance. UK and EU rules set retail close-out at 50% of required margin.
How is margin calculated on a CFD?
CFD margin is the position’s full value multiplied by the margin rate for that market. A $20,000 share position at a 20% rate needs $4,000, and a $20,000 position on a major currency pair at 3.33% needs about $667. The rate depends on the market’s volatility, your account and the rules where you live.
What does margin level mean?
Margin level is your equity divided by the margin your open positions are using, shown as a percentage. At 200%, your equity is twice your used margin. As losses reduce equity, the margin level falls toward your provider’s margin call level, often 100%, and then toward the close-out level, which is 50% for retail clients in the UK and EU.