Support Centre for Saxo Bank Switzerland

What is margin trading?

On Saxo Bank's platforms you are able to trade in various financial instruments, among these financial contracts such as FX Spot, FX Options, CFDs, Futures etc.

When you trade in such contracts, you are not buying an actual asset (as e.g. with stock trading) but you are entering into a contract.  As you are not buying the actual asset but entering into a contract, you have the possibility of entering a contract of a higher nominal value than you are holding on the account.

This is what is known as leveraging, gearing or margin trading – the benefit is that profits on successful, leveraged trades can be greater than what would be achieved on non-leveraged trades.

It should be carefully noted that also the opposite is true: leverage can also increase the size of losses, and you can lose more than your have deposited on your account.

Below an example from SaxoTrader, where the client has 10.000 EUR on the account and buys 2 DAX CFDs.

In this example the current market price ("Close") is 10,732.50, and since the client has bought 2 CFDs the "Exposure" is 21,465 EUR, while the account value is 10,040.00.
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In other words, the market exposure is greater than the account value, so this is an example of "leveraged trading".

Margin:
To be able to take leveraged positions, you need to have sufficient "margin" (also known as "collateral") on your account in order to guarantee any losses you may incur. Each margin traded instrument will have a margin requirement, which is a percentage of the "Exposure". In the above example, if the margin requirement on the DAX CFD were 2% the client would be required to have EUR 21,465 x 0.02 = 429.30 EUR on the account as margin.



 


 

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