In margined trading, the investor takes a loan from the broker and the stocks purchased through this loan are used by the trader as collateral. In margined trading, the deposit that you make for covering possible losses is your margin and the size of the spread betting margin will vary from one company to the next. However, one common rule is that the bigger your bet, the more is the possibility of a big loss and therefore, your margin will be greater. This helps in protecting the company that happens to place your bet and making sure that you are entering into financial spread betting in the right state of mind since you are not just risking your buy but the entire amount of margin if you end up losing the bet.
When financial spread betting or other derivatives the margin is actually calculated with relation to the worth of the bet and the percentage margin required by the financial spread betting firm. You will be given the margin before opening a position or bet you will get the quoted price at that time. This amount is multiplied with your betting amount in cash deposit followed by multiplying it with the margin demand percentage of the bet. Normally, the margin is not very large as compared to the spread betting size.
However, from another perspective, you will only have to pay a small portion of the position value which in turn will allow you to employ leverage. This will allow the spread better the opportunity to make a large profit with little capital investment. On the negative side, you may lose more than you expect, and even more than the capital in which you invested if the market moves in an opposing way. Often times if you did not set up a stop loss, or if you are running short on funds you may be called by the broker which is known as the margin call. A margin call in margined trading is when your margin starts to become insufficient in order to cover up potential losses. You will have to add more funds to your account at that time, and if you do not do it quickly enough, your positions may be closed.
Be sure to set your stop loss orders when you open your spread bets, if you do not you risk losing quite a bit. Margined trading acts as a double edged sword, with the good being the incredible amounts of profit you can make, and the bad being you can also lose more than you bargained for.
Financial Spread Betting 