One subject
Margin and close out
24 lessons, 31 glossary terms and 6 market guides cover this across the academy. Each one links to its own page, and nothing is repeated here.
Trading involves risk. You could lose more than your deposit.
The curriculum
24 lessons cover this.
In curriculum order, which is the order you would meet them.
- What a CFD isModule 01What you are actually trading9 min
- What long and short meanModule 01What you are actually trading6 min
- How a trade works from start to finishModule 01What you are actually trading9 min
- What margin isModule 03Margin and account mechanics9 min
- What account balance isModule 03Margin and account mechanics6 min
- What unrealised profit and loss isModule 03Margin and account mechanics8 min
- What used margin isModule 03Margin and account mechanics6 min
- What equity isModule 03Margin and account mechanics5 min
- What free margin isModule 03Margin and account mechanics5 min
- What margin level isModule 03Margin and account mechanics6 min
- What a margin call isModule 03Margin and account mechanics7 min
- What a stop out isModule 03Margin and account mechanics7 min
- What leverage isModule 03Margin and account mechanics9 min
- Offered leverage and effective leverageModule 03Margin and account mechanics8 min
- How a margin requirement is calculatedModule 03Margin and account mechanics8 min
- Why a loss is harder to recover than it was to makeModule 03Margin and account mechanics8 min
- Worked scenario: a single position reaches close outModule 03Margin and account mechanics10 min
- Worked scenario: two positions and a margin callModule 03Margin and account mechanics9 min
- How margin differs across the asset classesModule 03Margin and account mechanics7 min
- Rollover, holidays and thin marketsModule 06When the market moves8 min
- Volatility around events is a risk topic firstModule 08Macro and the calendar8 min
- What risk management actually isModule 09Risk, plan and practice7 min
- What portfolio heat isModule 09Risk, plan and practice7 min
- Adding to a losing position, as a risk topicModule 09Risk, plan and practice8 min
The glossary
31 terms belong here.
Alphabetical, each defined in one sentence on its own page.
- Account balanceThe cash figure on a trading account after every completed transaction, moved only by deposits, withdrawals, closed positions and posted charges, and unaffected by positions still open.
- Contract for difference (CFD)A contract for difference settles in cash the difference between an instrument's opening and closing price, calculated on the full contract value, with nothing delivered and no title passing.
- Contract specificationA contract specification is the published sheet of fields that define one instrument as it is dealt on a platform, including contract size, tick size, minimum volume, trading hours and margin requirement.
- EquityEquity is an account's balance adjusted for the running profit or loss on every open position, so it states what the account would be worth if all positions closed at the current quotation.
- Flat positionA state in which an account carries no open exposure to an instrument, so nothing revalues on a tick, no collateral is held against it and no unrealised result is running.
- Free marginThe part of an account's equity that is not currently held as collateral against open positions, and therefore the buffer standing between the account and a close out.
- Gearing ratioGearing ratio relates a contract's full value to the margin held against it: losses are calculated on that full value and are not limited to the amount deposited.
- HedgingHolding a second position whose result moves opposite to an existing exposure, so part of the first position's variation is offset while both remain open.
- Initial marginInitial margin is the amount set aside from an account when a position opens, calculated as a percentage of the contract's full value and held, not spent, for as long as the position stays open.
- LeverageUnder leverage, profit and loss are calculated on a contract's full value while only a percentage of that value is posted as margin, so a loss is not limited to the amount deposited.
- LiquidationLiquidation is the closing of open positions to turn them back into cash, either at the holder's own instruction or automatically by the firm once account equity falls to a stated level.
- MarginMargin is collateral held while a position stays open, not a payment for it: losses are calculated on the full contract value and are not limited to the amount deposited.
- Margin callA margin call is a notification that account equity has fallen close to the collateral open positions require, and it is a warning rather than the automatic closing that can follow.
- Margin close-outMargin close-out is the automatic closing of open positions by the firm once account equity falls to a stated proportion of the margin those positions require.
- Margin levelMargin level states account equity as a percentage of the margin currently in use, the single figure a firm's warning and close-out thresholds are measured against.
- Margin requirementA margin requirement is the percentage of a contract's full value that has to be posted and held while the contract is open, set per instrument by the counterparty.
- Mark to marketMarking to market revalues an open position at the current market price, which is how unrealised profit and loss on a running position is kept up to date.
- Negative balance protectionNegative balance protection limits a retail account's liability to the funds held in it, so a deficit left after a gapping close out is written off rather than owed.
- Net positionA net position is what remains in one instrument once long and short size have been offset against each other, stated as a single direction and a single quantity.
- NettingNetting collapses offsetting obligations into a single one, whether that means reducing long and short size in an instrument to one position or many payments between two parties to one transfer.
- Notional valueNotional value is the full value of a contract, its price multiplied by the units it covers, and profit and loss are calculated on that figure rather than on the money posted against it.
- Open positionAn open position is a contract entered and not yet closed, so it still moves with the market, still holds collateral and still attracts financing for each night it survives.
- Risk managementRisk management is the set of arrangements that determine how much can be lost on one position and across an account, covering size, protective levels, exposure to related instruments and the capital committed in total.
- Share CFDA share CFD settles in cash the difference between the opening and closing price of one listed company's shares, calculated on the full value of the contract, with no shares delivered and no shareholder rights attached.
- Short positionA short position gains if the price falls and loses if it rises, and in a contract for difference it is opened by selling first, with the intention of buying the same contract back later.
- Short sellingShort selling means selling something not owned in the expectation of buying it back lower, either by borrowing the actual security and returning it later or by taking the selling side of a derivative.
- Stop out levelThe stop out level is the margin level, stated as a percentage, at which a firm begins closing open positions automatically because the equity supporting them has fallen too far.
- Trade sizeTrade size is the quantity a position covers, entered as a volume in lots or units, and it is the figure that decides how much money each price movement is worth.
- Unrealised profit and lossUnrealised profit and loss is the running result on positions still open, revalued at the price each could be closed at now, so it moves on every tick without touching the balance.
- Used marginUsed margin is the total collateral currently held against open positions, the portion of an account's equity that is committed to what is already open rather than available to support anything new.
- Variation marginVariation margin is the money that moves to settle the change in a position's marked value since it was last valued, as distinct from the collateral posted when the position was opened.
The market guides
6 guides answer a question about it.
Standalone reference answers, entered laterally rather than worked through.
- Share CFDs compared with owning sharesMarketsWhat a purchase carries that a contract does not, and the arithmetic that separates the two.
- The contract for difference as an instrumentMechanicsWhat the two parties actually agree, how the settlement arithmetic runs, and how it differs from owning.
- Margin requirements by marketMechanicsWhat margin is, why the requirement differs by market, and when a published requirement can change.
- Margin close out explainedMechanicsThe sequence from a falling margin level to a closed position, and what the warning threshold does not do.
- Currency conversion on an accountMechanicsWhich figures on an account are converted and when, and how a conversion differs from a charge.
- Client money segregation in the UAEStructureWhat segregation obliges a firm to do, what happens in an insolvency, and the risks it does not address.
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