An Initial margin is a deposit used as collateral to open a CFD position. The margin is held to ensure you can meet your obligations.
A margin rate is expressed as a percentage and is calculated based on the liquidity and volatility of the underlying security. The more liquid, secure and less volatile a stock, index, or FX pair is the lower the margin requirement will be. In the case where a CFDs underlying asses it extremely volatile and has little liquidity CFD provider may not offer leverage and require an initial margin of 100%.
The margin requirement of a CFD position is calculated using the “mark to market” concept. This means that the current value of your position is assessed during each trading day. The margin required is adjusted to reflect the current market value of the position as the price of the underlying financial assets fluctuates.
Trader are sometime required to top up margins in their CFD accounts to avoid what’s called a ‘Margin Call’.
Basic example of Initial Margin: