You hear the term ‘margin’ being referred to all the time when it comes to spread betting. But what, exactly, is it and how does it work?
Let’s start with some context.
Spread betting, unlike traditional share purchases, is a leveraged trading position. This means that you only need to deposit a small fraction of the overall value of any trade to open a position. This is known as margin.
Spread Betting Margin Example
Say, for instance, that you wanted to purchase £1000 worth of shares of A Company PLC, whose share price was 100p. If you were to buy the shares through a traditional broker in a Stocks & Shares ISA account, you’d need to pay the full £1000 up front to own them.
However, if you decide to spread bet, and thus use leverage and trade on margin, you’d only need a fraction of this cost up front. Different spread betting providers require different margin amounts but if your provider requires a 20% margin, then the initial amount needed for the trade would be £200.
This is great if you don’t have much money but still want to get started trading stocks. Before you dive in though, you should make sure you fully understand that whilst trading on margin can magnify your profits, it can also magnify your losses.
How Does Trading on Margin Magnify Profits (and Losses)?
In the example above, instead of having to pay £1000 upfront, you were able to trade the same position for just £200 via spread betting and be in it for £5 per point. Now let’s say the position moved up 25 points.
You would profit £125. This is a 62.5% return on your investment whereas if you were holding £1000 worth of shares and the price went up 25 points from 100p to 125p, you’d make 25% return on your investment (then you’d have to take off your trading fees).
Here’s an example from spread betting provider City Index, whom I reviewed way back in 2012. I’ll do a more up to date review soon.
Whilst this looks great in the context of profits, know also that the same applies to losses.
Different Margin Requirements at Top Spread Betting Companies in the UK
I’ve taken some time to compile a table of the margin requirements at the largest spread betting providers in the UK. Whilst you should not choose your spread betting provider based on margin requirements alone, it is one of the factors you should consider when choosing who to trade with.
| Spread Betting Provider | Margin Requirement for Shares | Learn More |
| City Index | 20% | View City Index Margins |
| CMC Markets | 10%* | View CMC Markets Margins |
| ETX Capital | 20% | View ETX Capital Margins |
| IG Index | 20% | View IG Index Margins |
| Plus500 | 20% | |
| Spread Co | 20% | View SpreadCo Margins |
*For positions up to £10 per point.
How To Calculate Your Margin Requirements
Sometimes the margin requirements differ from instrument to instrument or market to market. Usually, in your spread betting software, when you click on a share to trade, you will be shown the margin requirements.
To calculate your margin requirements simply multiply the total notional value of your trade (stake x price of instrument) by the margin factor.
Margin Requirement: (Stake x Price) x Margin Factor
Need More Help? Drop Me a Message
If you need more help to understand how margin works in spread betting, please feel free to get in touch via comments below, email or instagram.
I’m usually pretty responsive but no promises!