The first term you are likely to come across when learning about financial spread betting is initial margin. This is often also referred to with several other names including deposit margin, deposit factor, initial margin requirement (IMR), margin factor or notional trading amount (NTA). All mean the same thing and refer to the amount of margin ( cash to you and me ) that you need in your account in order to open a spread betting trade.
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Now it is important to realise that every financial market ( and spread betting company ) will have different margin requirements – those which are more volatile will require higher margin amounts in your account, and those which are less volatile, smaller amounts. So for example a contract on a stock which only moves a few pence per day will have a much lower initial margin required, than for a volatile currency pair such as the GBP/JPY. Now the next question of course, is where do we find this information and how can we work it out for ourselves?
Find the Product Information
The first thing you need to do is look for the “product information” with your spread betting company, of which you will find several examples covering all the various markets that the company offers to trade. Having found the information sheet you need to look for the column headed IMR, and each product will have a numerical value which varies for each one, and as an example assume we are looking at a FTSE future which has a quoted IMR of 30, a Wall Street Future with an IMR of 70, and a Brent Crude Future of 130.
Now assume you are proposing to open a trade with £2 per index point (or cent for the oil contract), then you will need £2 x 30 (£60) for the FTSE100 future, £2 x 70 ( £140) for the Wall Street future, and £2 x 130 ( £260) for the Brent Crude future – easy really! So with a simple piece of maths we can always work out whether we have enough cash ( margin ) in our spread betting account to open a trade.
Now the reason they are all different is simply because each market that you trade has a different risk profile, with some being more volatile and hence riskier than others. In the above example the least risky is the FTSE future, whilst the Wall Street Future is the riskiest of all.
This is how the spread betting companies calculate the risks of each market and therefore how much margin you must have deposited in your account in order to be able to trade a particular contract in your spread betting account.