Margin Trading

Trading on margin means borrowing funds from a broker to purchase securities. You only pay a certain percentage (or margin) of the value. This allows you to trade beyond your own available funds.

A simple example:

Suppose you have cash of €3,000 but you would like to buy stocks worth €10,000. You then could wire additional funds to your account, wait for their arrival and then proceed with the purchase.
Is there not a more clever solution? Yes! The broker could also collateralize your cash and lend you more cash! By that you can tap into additional funds to make the purchase of €10,000. The broker would only require a security deposit, also known as an initial margin, of €3,000. The outstanding amount of €7,000 is lent by the broker.

in Short:

Margin trading allows you to take on greater obligations without having the corresponding cash on hand.

Now let’s assume the stock you bought worth €10,000 goes up by 1% and is now worth €10,100. The gain of €100 is all yours! What does this mean for your equity? It rises from €3,000 to €3,100. This is an increase of (€100/€3000) = 3,33% although the stock price only increased by 1%.

Trading with only your own fundsTrading on Margin
Initial Deposit€3,000€3,000
Available to invest€3,000€ 10,000
Purchase€3,000€ 10,000
Remaining available funds€ 0€ 7,000
Profit from Investment (it goes 1% up)€ 30€ 100
Return on your capital1%3%

Margin trading can magnify your investment returns, but it also increases risks. You need to carefully monitor your positions and manage risks to ensure that you can fulfill the obligations associated with trading on margin.

How does trading on Margin work?

A margin account enables you to trade with additional funds, which allows you to enter bigger positions. Therefore, your available funds exceed your cash amount. The trading platforms clearly demonstrate your advantage.

The cash balance is negative which means you borrow funds.

We can still make use of available funds: Our securities serve as a collateral and allows for borrowing more cash.

And when you try to make a purchase about, let’s say, €10.000, you only need to post a fraction of that value as a collateral: The so called Initial Margin.

See your margin impact
Review Margin Impact in LYNX+

The initial margin changes only by a fraction of the purchase amount as indicated by the “Change” in the section about “Initial Margin”.

Review Margin Impact in TWS

Right-click a pending order and select “Check Margin Impact” from the menu.

The order preview window shows the impact of the order on your account. The column“Change” in the “Balances” section indicates how margin requirements will change post-trade.

Review Margin Impact in LYNX Trading App

To view the impact on the margin, click on “Preview” in the bottom right corner.

The margin display for the current position opens up.

Overview about margin requirements

For equities, ETFs and exchange-traded funds, the margin requirement is usually 15% to 100% of the value of the position. The margin requirement for short positions ranges between 30% and 100% of their value.

Long options
up to 100% of the premium paid will be required as margin. However, depending on the contract’s duration and liquidity, IB may impose stricter requirements.
Short call
No margin is required if it is a covered call option. If the short call option is not covered, the system performs a simulation of various scenarios and determines the required margin based on the maximum possible loss.
Short put
This option strategy requires at most the margin required for the allocation of the put. For example: a stock from company A has a value of 100 USD. If a margin of 50% is required for the stock, a margin of 5,000 USD is required for a position of 100 stocks. Therefore, if you sell a put, the maximum required margin is 5,000 USD, which is the same amount required for buying 100 stocks.
Credit spreads
For credit spreads, at most the difference between the two strike prices multiplied by the value of the underlying asset, minus the value of the premium received for this credit spread, is required as margin. Let’s take a 100/95 bull put spread as an example. This is a credit spread where the 100 put is sold and the 95 put is bought, resulting in the seller receiving a premium (credit). Assuming you receive $2.50, or a total of $250 ($2.50 * 100 shares per contract), the calculation of the required margin would be as follows:
5 USD (difference between the two strikes) * 100 (per contract) = 500 USD.
500 USD – 250 USD (received bonus) = 250 USD
The maximum margin for this position is therefore $250 USD.
UnderlyingExchange BELFOXIntraday Initial 1Intraday Maintenance 1Overnight MaintenanceProduct description 
BFXBELFOX8730.17N/A6984.13BEL 20 Index
10YCBOT700N/A56010 Year Micro Treasury Yield
2YYCBOT1399.04N/A1119.232 Year Micro Treasury Yield
30YCBOT818.228N/A654.58330 Year Micro Treasury Yield
5YYCBOT1307.49N/A1045.995 Year Micro Treasury Yield
AIGCICBOT1391.36N/A1113.09Bloomberg Commodity Index
ACCBOT6125N/A4900Ethanol -CME
KECBOT5740.37N/A4592.29Hard Red Winter Wheat -KCBOT-
MYMCBOT693.588603.12861.6Micro E-Mini Dow Jones Industrial Average Index
DJUSRECBOT4849.31N/A3879.45Dow Jones US Real Estate Index
TNCBOT3928.78N/A3143.02Ultra 10-Year US Treasury Note
TWECBOT6379.1N/A5103.2820-Year U.S. Treasury Bond
UBCBOT8125N/A6500Ultra Treasury Bond
YCCBOT607.545N/A486.032Mini Sized Corn Futures
YKCBOT1270.46N/A1016.36Mini Sized Soybean Futures
YWCBOT1004.49N/A803.591Mini Sized Wheat Fu

The European Securities and Markets Authority (ESMA) has issued new rules for trading CFDs for retail investors, effective from 1 August 2018. The AFM and other national regulatory authorities have implemented the ESMA regulations. This section will examine these new regulations and their implementation. These regulations do not affect professional clients.

The new laws and regulations require you to use a multiple account structure with a separate CFD segment. You are not allowed to use securities in your account as collateral for your CFD positions. We have included a separate CFD segment with free credit in your account to comply with these requirements. You can check this in the account window of the Trader Workstation (TWS) and the LYNX Trading App. Below, we explain the account window and margin requirements for CFD trading.

Options and structured products generally require an initial margin of 100% of the market value. In some cases, this may deviate due to risk-based margin calculation.

The margin requirements for spot gold (XAUUSD) and spot silver (XAGUSD) are as follows:

The calculation of margin in theory

Interactive Brokers uses a risk-based model called Portfolio Margin to determine margin requirements based on historical volatility. There are different calculation methods depending on the product, two of which we explain here:

Theoretical Intermarket Margin System (TIMS) u0026amp; Singleton Margin Method

Both are mathematical methods to simulate various scenarios for your portfolio and calculate the risks of options and futures:

  • TIMS scans your entire portfolio to analyze risks and simulates the two largest positions at ± 30% and all others at ±5% to examine the risk of low diversification. The calculation also considers the impact of extreme price fluctuations and high concentration of risk. Therefore, changes in implied volatility of options, large positions, and remaining days until expiry have an impact, too. Please be aware that the initial margin requirement is usually higher than the minimum maintenance margin requirement.
  • In contrast, the Singleton Margin Method calculates the margin requirements for small-cap stocks with market capitalization of less than $500 million. It enables the simulation of price fluctuations, with an increase of 30% and a decrease of 25%.The system selects the scenario with the highest possible loss and applies it as a requirement for your portfolio. Margin requirements for stocks typically range from 15-30% of the market value depending on the calculation.

The Chicago Mercantile Exchange (CME) developed SPAN as a risk-based method for calculating margin requirements for futures and futures options. Then, test your portfolio under hypothetical scenarios to examine price changes and the implied volatility of options. We use “in-house scenarios” to examine extreme price fluctuations and their impact on out-of-the-money options. We choose the scenario with the greatest possible loss as the margin requirement.

Frequently asked questions

Does margin trading come with extra fees and costs?

If you want to trade on margin, you can upgrade your cash account to a margin account at no extra cost. However, borrowing funds accrues interest which you need to pay.

Where can I apply for a margin account?

You should go to the Client Portal and select Settings. Then, choose account configuration and from there, select account type. Now, you can continue by providing your current experience with margin trading and then sign the margin risk disclosure.

Is it necessary to have a margin account?

Generally, it is not necessary to trade on margin. Albeit, some products require you to upgrade to that account type:

  • Futures
  • CFDs
  • Short options and certain option strategies
Can I buy all products on margin?

You cannot buy all financial instruments on margin. Risk assets like Penny Stocks, Warrants, and issuer products often demand payment with 100% of your own funds.

What are the advantages of trading on margin?

In contrast to the cash account, you can, among other advantages:

  • Use a higher purchasing power (balance beyond your cash)
  • Sell shares short
  • Trade options and combinations flexibly
  • Bridge the settlement periods of stock exchange trading

Please note that trading on margin may incur interest and other fees.

Is it possible to receive a margin call?

Interactive Brokers does not issue margin calls, so liquidates assets when the margin threshold is reached. Accounts receive real-time Margin Warning information.

Which requirements do I need to meet?

You must be at least 21 years old to trade on margin. The deposit value (net liquidation value) must be at least 2,000 EUR. If the deposit value is lower, you will automatically trade as with a cash account. You can read more about our minimum requirements.

How often do margin requirements change?

The exchanges and the broker itself define the requirements for initial margin and maintenance margin. Generally, the margin requirements change once per day, but this can change. Additionally, some future contracts have particularly low intraday margin requirements.