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MARGIN AND INTERESTS IN CFD

margin-interest

Margin

CFD market offers exciting opportunities for these traders (speculators). Dealers are willing to provide money to enable them to increase their potential for generating profits from their transactions. But before this option is given to you by your dealer you will need to show that you have sufficient funds in your account to cover possible losses which may be incurred. The money that is blocked in your account by your dealer to ensure himself is called margin.
For example, if you buy CFD of a definite company you probably will be obliged to leave 10 percent of the share price as margin. If the share price is $ 80 you should have in your account free $ 8 to prove to your dealer that you can cover any loss of at least $ 8 (10 percentile loss) if you do not know the direction of price movement.

 

The above mentioned 10% margin is only an example because the rates may be different. Different CFD have different margin requirements. CFD responding to stocks and indices are traded a lot and require a very small margin because in high levels of liquidity it is possible an easier and faster entry and exit from the trade. So dealers can be confident that they can quickly react and close your position without incurring unexpected loss if the movement has deepened. CFD covering stocks and indices which are not traded actively and have less liquidity need a larger margin because the low levels of liquidity make the rapid entry and exit from the trade difficult and uncertain.

Many of the beginning CFD traders often believe that the blocked money as a margin is a deposit for shares or index but that is wrong. Margin just provides the dealers that the client (speculator) has money (funds) to cover the losses if any are realized.

Interest in financing with CFD trading

CFD-Because it is a product that is traded on margin, you finance its commercial value by "overnight" interest. In return, your dealer is flexible in its application. When you leave an open CFD position in the next day or session, this item will be credited or debited according to the level of bank "overnight" rates. If open and close the CFD position on the same day or session, you do not accrue interest.

 

 

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