Contracts for Difference (“CFDs”) offer leveraged long/short trading on almost every financial instrument such as shares, bonds, foreign exchange, commodities, indices, exchange traded funds and futures. CFDs offer you the ability to trade on the change of price in underlying financial instruments with immediate execution and by using considerably less capital. To see a full list of the CFDs we offer, please refer to our CFD page.
What is Leveraged Trading?
Trading on leveraged capital means that you can trade amounts significantly higher than the funds you invest, which only serve as the margin. High leverage can significantly increase the potential return, but it can also significantly increase potential losses. Please see below an explanation on our “Negative Balance Protection” where we guarantee that you cannot lose more funds than what you have invested. The leverage is specified as a ratio, such as 10:1, 50:1, 100:1 or 200:1. This means that you, as our client, can trade with amounts many times higher than you could invest in a particular CFD without the margin we provide.
Sometimes the Leverage is expressed in percentage terms – and referred to as Margin requirement. A Leverage of 100:1 is a margin requirement of 1%.
Example: If the leverage is 200:1 and if you as our client have $1,000 in your account, it means that you can now open trades worth $200,000.
What is a Spread?
The spread is the difference between the bid price (selling price) and the ask price (buying price) of the CFD.
Example: If the quote for the EUR/USD pair is 1.2910 against 1.2913, then the spread is 3 pips.
What is Initial/Required Margin?
Also known as the Initial Margin Requirement, the Initial Margin is the percentage of a financial instrument price that you, as the client, need to pay for with your own money. This requirement is basically the amount of collateral needed in order to open a margin account.
Required Margin or Margin Requirement refers to the amount you need in order to open and maintain a position, in addition to the initial loss that will occur due to the spread. The Required Margin is derived from the following formula: (Amount * Instrument Price) / Leverage + (Amount * Spread).
Example: If you intend to buy a CFD on 10 barrels of oil at a price of 51.30 per barrel. The leverage on the Oil CFD is 100:1. The spread on the Oil CFD is $0.03. Your Margin requirement is calculated as follows: (10 * 51.30) / 100 + (10 * 0.03) = $5.43
What is Equity?
In a nutshell, Equity can be defined as the value of your portfolio with us. Effectively it is the value of your funds with Safecap Investments Limited (“Safecap” or “us”), plus the unrealized profit and loss on your CFDs based on their latest quoted valuation.
Introduction to Margin Level
The Margin Level indicates how close your account is to a margin call. It is calculated as Equity/Initial Margin and is typically shown in “%”. When the margin level decreases, your account bears increased risk of liquidation. We call this the Close Out (stop out) Level and explain it further below. You are advised that you should monitor this margin level at all times. Whilst we may from time to time send you notifications of your Margin Level reaching certain thresholds, you are reminded that under the Retail Client Agreement between you and us it is your responsibility to monitor at all times the margin level and take relevant actions.
Relevant actions that you can take to restore your Margin Level include:
- Closing or hedging some of your open positions.
- Depositing more funds that can help in averaging down your position.
Please note that we do not provide advice for the trading decisions and actions you take, including with respect to the actions you may take to address the Margin Level requirements such as the ones we refer to above.
What is Free Margin?
Free Margin is the sum of funds you have available to use as initial margin for new positions. This is calculated by subtracting the margin used for your current open positions from your Equity.
What is Maintenance Margin?
Maintenance Margin refers to the minimum equity you need to have in order to keep your positions open. This is also commonly referred to as “maintenance requirement” or “minimum maintenance” and is the same as the Close Out we refer to above. At Safecap, the Maintenance Margin is currently 20%.
If your Maintenance Margin reaches 20%, your positions will start to liquidate starting from the position with the highest losses.
Example: You have an open position on EUR/USD with used margin of $500. Your Balance is $10,000 and your Equity $900. This means that your maintenance margin is at 180% (Equity of $900 divided by Margin used of $500). If your floating loss reaches $9,900 means that your equity will become $100. Therefore your maintenance margin will be 100/500 = 20%.
What is Used Margin?
Used Margin indicates the sum of margin being used by your current open positions. It is calculated by adding the initial margins of all your open positions.
Example: You open a position of 10,000 EUR/USD at 1.1175. The initial margin requirement is 0.5% (i.e. a leverage of 200). The margin used for your position is calculated as follows:
(10,000*1.1175)/200 + 10,000*0.0002= $57.87
In addition you open a position of 100 units of the Apple CFD at 107.70. The initial margin requirement is 5% (i.e. a leverage of 20). So the initial margin used for this position is calculated as follows:
(100*107.7)/20 + 100*0.07 = $545.50.
Therefore, the total Used Margin that you see in your account with us is $57.87 + $545.50= $603.37.
What is Margin Level?
A margin level is calculated by dividing the current Equity and the Used Margin.
Margin level %= (Equity / Used Margin) * 100
The margin requirement is specific for each instrument and can found here.
Please note that we reserve the right to change at our sole discretion the margin requirement without prior notification to you, based on actual or expected (in our opinion) market volatility or our view of market conditions in general.
Your Equity is: $1,000
Your wish to open a Buy position of $100,000 vs. CHF
Margin requirement: For the USD/CHF pair, the margin requirement is 0.5% which equals $500.
Margin Level %: ($1,000 / $500) * 100 = 200 %
We advise you that it’s your sole responsibility to monitor the margin level of your positions in real-time via your web trading platform or your mobile/tablet app.
In the event that the value of your positions fall below 60%, 40% or 20% of the Initial Margin requirement, we will send you an email and/or notification. As mentioned above, the 20% margin level is the minimum margin you need to maintain for an open position. We reserve the right to change this minimum margin level at our discretion in anticipation of evolving market conditions.
Should your equity fall below the minimum margin level of 20%, then we reserve the right to liquidate all or a part of your open trades and close any open positions at our discretion, until your account equity rises above the 20% margin level. We will liquidate positions starting from the position with the highest loss. A grace period may be provided to you by Safecap at its discretion in order to avoid the liquidation of your open positions. During this grace period, you as the client can perform one or more of the following actions:
- Deposit more funds to your account to increase equity.
- Close some of your open positions.
- Deposit more funds and hedge or average down* current positions.
*The process of buying additional amount in a specific asset at lower prices than you originally purchased. This brings the average price you have paid for the specific asset down.
- Choose not to take any of the above actions.
However please note that if during this grace period the value of your account falls to 1% of the Initial Margin requirement or if any other market conditions (including unusual volatility) require us to do so, your position will be liquidated without any other notice.
As stated above, please note that we do not provide advice for the trading decisions and actions you take, including with respect to the actions you may take to address the Margin Level requirements such as the ones we refer to above.
Negative Balance Protection
We offer all our clients Negative Balance Protection. This means that you will never lose more than the amounts you invested with us.
Conflicts of Interest
In line with our culture and policy of treating customers fairly, we hereby remind you that we may be the counterparty to your trade. This means that when your Initial Margin reduces, in those cases where we may be the sole counterparty to your trade, then any losses that you incur may reflect profits for our account. Correspondingly, if you register profits for your trades, in such cases we incur losses.