Margin (Security Deposit) — What it is

Quick Answer

Margin (security deposit) is the minimum amount of funds an investor must hold to open and maintain a leveraged position, serving as collateral for the broker against losses. With 1:5 leverage, a 10,000 PLN position requires a 2,000 PLN deposit and an 8,000 PLN broker loan, amplifying both gains and losses. Initial margin opens the position while maintenance margin keeps it open; falling below it triggers a margin call that can force automatic liquidation. ESMA caps retail leverage in the EU. This is educational information, not investment advice.

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Definition

Margin (security deposit) is the minimum amount of funds an investor must have in their account to open and maintain a leveraged position. It serves as collateral for the broker in case of losses.

How Does it Work?

Suppose you want to buy shares worth 10,000 PLN with 1:5 leverage. The broker requires a 20% deposit:

• Position value: 10,000 PLN
• Your deposit: 2,000 PLN
• Loan from broker: 8,000 PLN

If the shares rise by 10% → you gain 1,000 PLN (50% return on your contribution). But if they fall by 10% → you lose 1,000 PLN (50% of your deposit).

Initial vs Maintenance Margin

• Initial margin: amount required to open a position, e.g., 20% of value
• Maintenance margin: minimum level of funds to keep a position open, e.g., 10% of value

When your funds fall below the maintenance margin, a margin call occurs.

Margin Call — Request to Top Up Deposit

A margin call is a situation where the broker demands additional funds. If you don't top up the deposit within the required time, the broker will automatically close your positions — often at the worst prices.

This is one of the most stressful scenarios in investing and the main risk of leveraged trading.

Regulations in Europe

The European regulator (ESMA) limits leverage for retail investors:

Who Uses Margin?

• Forex and CFD traders
• Futures contract investors
• Professional portfolio managers (hedging)

For beginners: Margin trading is an advanced instrument. If you're just starting, invest with your own funds (without leverage).

How Freenance Can Help

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FAQ

What is a margin deposit?

A margin deposit is collateral an investor posts with a broker to open and maintain a leveraged position, such as a futures contract or CFD. It is not a fee — it is held as security against potential losses and is returned (adjusted for profit or loss) when the position is closed.

What is the difference between initial margin and maintenance margin?

Initial margin is the amount required to open a leveraged position, while maintenance margin is the minimum equity that must remain in the account to keep the position open. If equity falls below maintenance margin, the broker issues a margin call requiring additional funds.

How does a margin call work?

A margin call is a broker's demand to top up the account balance after losses have reduced equity below the maintenance margin threshold. If the investor does not add funds within the specified time, the broker may close positions automatically to limit further losses, often at unfavourable prices.

How does leverage relate to the margin deposit?

Leverage describes the ratio between the notional value of a position and the margin deposit required to hold it. Higher leverage means a smaller margin relative to position size, which amplifies both potential gains and potential losses on price movements in the underlying instrument.

Why does ESMA limit retail leverage in the EU?

ESMA introduced leverage caps for retail clients trading CFDs because regulators observed that a large majority of retail accounts lost money on highly leveraged products. The limits aim to reduce the speed at which losses can exceed an investor's initial deposit, though they do not eliminate the risk of loss.