Margins are designed to protect the financial security of the market by ensuring that you can meet your obligations. If you trade an ASX Listed CFD, you have a potential obligation to the market because the position may move against you.
After your order is executed, the ASX Listed CFD trade is registered with ASX Clear (Futures). This process, called novation, results in ASX Clear (Futures) becoming the counterparty to both the buyer and the seller.
Each day, ASX Clear (Futures) calculates the margin necessary to ensure you can meet your trading obligations on that day. (Note that ASX Clear (Futures) relationship is with your broker's Clearing Participant and not directly with you)
The total margin for ASX Listed CFDs is made up of two components:
How margins are met
Your broker will require you to provide collateral to cover your margin obligations. Note that minimum margin requirements are set by ASX Clear (Futures), but higher margin requirements may be imposed by brokers and clearers.
Payment of margins
Margins are recalculated on a daily basis to ensure an adequate level of margin cover is maintained. However, in exceptional circumstances, margins may be recalculated intra-day. This means that you may have to pay more if the market moves against you. If the market moves in your favour, margins may fall.
Settlement requirements for trading ASX Listed CFDs are strict. You must pay margin calls by the time stated in your Client Agreement. This is usually within 24 hours of being advised of the margin call by your broker. If you do not pay in time, your broker can take action to close out your positions without further reference to you.
Further information on margins can be found in our CFD online education section.