Margin trading

What is margin trading?

Firstly, margin is a deposit required to open a leveraged position – that is a position larger than your capital investment. So margin trading allows you to purchase larger units of an asset at a fraction of the cost in order to increase your market exposure even if you are trading with limited capital.

This means that with the same capital, you will be able to buy more of an asset. The result is a more substantial profit when you win a trade and of course, a more significant loss when you lose.

The relationship between margin and leverage

These terms, often used interchangeably in online trading, differ somewhat in meaning. Just like margin, leverage allows you to control a trading position that is larger than your capital.

However, while leverage is expressed in ratios such as 50:1, 100:1, 400:1, margin is expressed as a percentage of the amount required to open a position, for instance, 2%, 1%, and 0.25%.

Based on the margin allowed, you will be able to ascertain the maximum leverage that you can utilise in your trading.

Why trade on margin with Deriv

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High leverage, low spreads

Take advantage of high leverage and low spreads on Deriv MT5 (DMT5).

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How margin contracts work

If we take an example, one lot (100,000 EUR) of EUR/USD pair with a unit price of 1.10 USD will cost you 110,000 USD. However, a 1% margin will enable you to open a position worth 110,000 USD by paying only 1,100 USD. A leverage of 100:1 will also give you the same level of market exposure as trading on 1% margin.

How to calculate margin for products on Deriv

When trading on Deriv, you can calculate the margin allowed for a contract by using one of the formulas below:

  • The leverage formula: This formula calculates margin as Volume in lots x lot size x asset price / leverage = margin. The leverage formula is used in determining the margin for forex currency pairs and commodity pairs.

  • The margin rate formula: This formula calculates margin as Volume in lots x lot size x asset price x margin rate = margin. The margin rate formula is used in determining the margin for cryptocurrency contracts.

Margin policies on Deriv

When trading on Deriv, we can apply stop-out and forced liquidation measures to protect your account against losses that might exceed your equity. Equity, in this case, is the sum of your balance and floating profit and loss (PnL).

These measures are enforced when the margin level, that is, the ratio of equity to margin, falls below the stop-out level (usually 50%). When this happens, we will initiate a forced liquidation process to close your positions in the following sequence:

  • Firstly, we will delete the order with the largest margin reserved.

  • If your margin level is still below the stop-out level, the position with the second-largest margin reserved will be deleted but orders without margin requirements will not be affected.

  • If your margin level is still below the stop-out level, we will close the position with the largest loss.

We will continue with this process until your margin level becomes higher than the stop-out level.

Things you should know when trading on margin

Margin increases both potential profit and loss

Trading on margin increases your market exposure, thus amplifying both your potential profit and loss.

Stop-loss

You can use the stop-loss tool to minimise potential losses and decrease the chances of getting a margin call.

Margin call

You can still open positions when you get a margin call, but we recommend you add funds to your account to keep your positions running.

Margin requirements

Margin requirements may differ depending on factors like the asset you want to trade, the equity in your account, your account type and market conditions.

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Important notes on our swap rates (overnight funding)

If you keep any position open overnight, an interest adjustment (or swap rate) will be made to your trading account to compensate for the cost of keeping your position open. Instruments traded on our platforms are subjected to different swap rates and other conditions:

Forex and commodities

The swap rate is based on interbank lending rates, in addition to a 2% fee that is charged daily (every night) that your position is held. The swap rate also depends on the time and days that you hold your positions open:

  • If you keep a position open past 23:59:59 GMT, you will be subjected to the basic swap rate.

  • Since it takes two days for forex transactions to settle, positions that are still open on Wednesday at 23:59:59 GMT will be charged three times the swap rate to account for weekends.

  • Our swap rate may also be adjusted to take holidays into account.

Synthetic indices

An interest adjustment will be made to your trading account to compensate for the cost of keeping your position open overnight.

The interest adjustment is calculated on an annual basis for long and short positions according to the formula: (volume in lot * specified swap size/100)/360.

Please note that our swap rate also depends on the time and days you hold your positions open.

Start trading on margin with Deriv

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Practise

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Trade with a real Deriv MT5 (DMT5) account and get access to high leverage to trade positions larger than your existing capital.

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Withdraw

Conveniently withdraw your funds through any of our supported withdrawal methods.

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Markets available for margin trading