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Variation Margin

Posted By Robert On Friday, April 24th, 2015 With 0 Comments

In addition to the Initial Margin required to open to hold a CFD position, you may also be required to pay an additional margin incurred by an adverse price movement in the market, this is known as Variation Margin. The Variation Margin is based on the intraday marked to market re-evaluation of your CFD position. As the price of the underlying share or instrument changes, your CFD position will move in real-time to reflect the change in the price. As the value of your position changes your margin requirement will be adjusted to reflect the new value.

For example, if you have a long CFD position and the price of the equity you are trading decreases, you will be required to pay a Variation Margin. The Variation Margin is a percentage of the total position size and the amount required will cover the adverse movement in the value of your CFD position.

On the other hand, if you have a short CFD position and the price falls, you would receive a Variation Margin equal to the positive movement in the value of your CFD position.

When a CFD position is positive, usually, the unrealised profits will cover the increase in the variation margin. On the other hand a negative position, due to leverage, means the unrealised losses will far out weight the decrease in margin requiring you to make sure you have extra capital available to cover this.

When trading CFDs, you need to ensure you are able to cover the margin requirements as all CFD providers have strict policies on margin calls and have the right to close out your position if you are unable to meet your margin requirements.

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