Finding the best spread betting margin rates can be a time consuming exercise. There is no one place to compare spread betting margins rates. The reason being is that margin rates are an integral part of how spread betting companies make money. They can change margin rates and any time. There are also different margin rates quoted for different markets and each spread betting company can calculate rates in different ways. This post will look at what a spread betting margin rate is, compare margin rates, and talk about the margin call.
Who knows the spread betting companies may decide to make this information easily available so that it can be collected a presented to those who want to compare margin rates. Rather than concentrating on margin rates alone, it’s probably better to weigh up the benefits of the different features on offer. Viz, ‘the spread’, commission rates, trading requirements, and customer service.
Again, depending on the market that interests you most the features available, and those that will give you optimal trading for your style will vary.
What is trading on margin?
Trading on margin is like having an open line of credit from the spread betting company. A little bit like a revolving credit facility. It enables you to trade with more money than you have in your account. The margin rate takes is calculated as a percentage of the liability on each trade. Trading with a margin rate of 10% would mean that you would only need £100 to trade up to a liability of £1000. This is one reason why spread betting on margin is such a good way to leverage or gear up your trading or investing portfolio.
The spread betting companies will all operate differently when it comes to margin rates. Spread betting margin rates vary from as low as 1% to as much as 15%. Typically the margin rate for shares in large companies would be 5%, whereas rates for small cap shares could be 15%.
Expect margin rates to be much lower for popular markets and higher for those markets that are a little more exotic.
What is a margin call?
Put yourself in the shoes of the spread betting company. If you where to write someone a blank cheque or give them a credit card with no limit you would be a little cautious, wouldn’t you?
If losses on your account exceed the margin rate then expect a margin call. The spread betting company will want you to get your account in order. Trading on margin is the same as trading with borrowed money. So, the trader should be cautious and take into account the overall liability on account. Losses need to be paid back!
A misconception is that losing trades will be stopped out automatically. The spread betting company will allow you to trade over your margin and will give you a margin call. As always use stop loss orders and guaranteed stop loss orders to manage risk accordingly.
Different spread betting companies deal with ‘the margin call’ in various ways depending on the exclusivity of the account. Perhaps a little bit like the relationship with your bank manager. Like what you’d expect from a standard current account at Halifax or private banking with Coutts & Co. In most cases if you trade into the red expect a margin call relatively quickly. Most spread betting companies will be open to negotiation as to how to rectify the problem.