Required Margin and Position Size
Required margin = position value ÷ leverage. The bigger the position, the more margin is locked up, and the more you lose on the same move.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
Every lesson has an interactive simulation you can drag and play, plus a quick quiz. Sign up free to use them and save your progress automatically. Here is the text version of this lesson.
Not sure yet? Try the first lesson (no sign-up needed)「What Is a CFD?」。
Text version · CFDs, lesson 4: “Required Margin and Position Size”
Required margin = position value ÷ leverage. The bigger the position, the more margin is locked up, and the more you lose on the same move.
Margin is a deposit, not a fee
Opening a CFD position doesn't require the full price; you just lock up part of your money as margin. The amount needed to open is the required margin, which is released back to available funds when you close.
How required margin is calculated
Required margin = position value ÷ leverage, which you can also write as position value × margin requirement. A position of 100 units × $100 = $10,000 needs $1,000 at 10:1 leverage.
Small required margin ≠ small risk
At the same leverage, doubling the size doubles both the required margin and the P&L for the same move. A 500-unit position needs only $5,000 of margin, yet a 5% drop loses $2,500.
Key takeaways
- Required margin = position value ÷ leverage = position value × margin requirement (10:1 means 10%).
- At the same leverage, doubling the quantity doubles both the required margin and the P&L for the same price move.
- A small required margin doesn't mean small risk. To judge risk, look at position value and its impact on your account equity.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Keep a $100 unit price, 10:1 and price −5%: what are the required margin and loss for 10 / 50 / 100 / 500 units in the table?
- Drag the size to 500 units: margin is only half the account, but what percentage of the account is the loss?
- Switch leverage from 10:1 to 50:1: the required margin changed, but did the P&L in the table?
- Drag the size to 1,000 units with 5:1 leverage: why does it say there isn't enough margin?
Quiz and explanations
- 1. 100 units at $100 each, with 10:1 leverage. What's the required margin?
- Answer: $1,000.Position value $10,000 ÷ 10 = $1,000.
- 2. The position value is $20,000 and the margin requirement is 5%. What's the required margin?
- Answer: $1,000.$20,000 × 5% = $1,000.
- 3. Your account is $10,000. At 10:1 leverage you open 500 units at $100, and the price falls 5%. What share of your account do you lose?
- Answer: 25%.Position $50,000 × 5% = $2,500, which is 25% of $10,000, even though the required margin was only $5,000.
Terms in this lesson
- leverage (Leverage): Controlling a large position with a small amount of margin; 1:100 means $1 controls a $100 position.
- margin (Margin): The deposit set aside when you open a position = position value ÷ leverage.
- margin requirement (Margin Requirement): The share of a position's value the broker requires as margin to open it; for example, 10% corresponds to 10:1 leverage.
- notional value (Notional): The total value of the asset a position controls; for example, 1 lot of EUR/USD ≈ $108,500.
- required margin (Required Margin): The funds set aside to open and hold a position = position value ÷ leverage (or position value × margin requirement).