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:
- Initial margins - initial margins protect the Clearing House from risk resulting from a negative movement in the value of a position as a result of a change in overnight market prices. The Initial Margin is typically set at a level designed to cover reasonably foreseeable losses on a position between the close of business on one day and the next.
- Variation margins - in addition to the Initial Margins required to open contracts, any adverse price movements in the market must be covered by further payments, known as Variation Margins. The variation margin is based on the end of day marked to market revaluation of an ASX-listed CFD position.
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.