Spread Betting Providers Initial Margin Requirement Comparison

Published by Filipe R. Costa on Tue, 17/05/2011 - 12:37
margin call

Sometimes it is useful to use margin to the limits, especially when we trade indices or currencies and when we are trading with just a few pounds. Not being able to open positions when there is money in our account is frustrating. Cut The Spread investigated initial margin requirements across spread betting providers identifying the best places to trade.

Every time you place a spread bet you need to put aside some money to cover any losses that may result from that trade. You don’t need the full amount invested but just a margin. When you buy the FTSE at 6,000 you don’t need £6,000 but possibly just £30 or £50 like it happens in the futures markets. The exact margin needed will differ from provider to provider since each has its own rules and policy. As a final result, there are large differences between them.

But, let’s look at an example. You want to trade on FTSE 100. To stake £1 per point you will need just £30 with Capital Spreads but double that amount if you trade with Finspreads. The differences can be even larger. Spread Co will require you £80 to start a bet in Gold while City Index forces you to put aside a whooping £300.

If you have a well-stocked account and usually place bets of no more than 2-3% of your funds you probably won’t be much concerned with margin requirements. But if you have small accounts with just some hundred-pounds you will notice how limiting these margin requirements can be. Finspreads requires you to have £120 to trade the Dow. If you have an account with £100 you just can’t trade that market although you have funds to cover a 100-point loss that is almost 1% change in the index. By other side, Capital Spreads and Spread Co will require you to have just £50.

The following table makes a comparison between five major spread betting providers regarding initial margin requirements across several markets:

 

 

FTSE

DOW

DAX

GBP/USD

EUR/USD

Gold

Brent

IG Index

30

60

35

80

65

140

400

Capital Spreads

30

50

50

60

40

100

130

Spread Co

30

50

40

60

40

80

N/A

City Index

60

120

80

160

140

300

300

Finspreads

60

120

80

160

140

300

300

As you can see there are large differences across the six companies. Capital Spreads and Spread Co are the best providers when initial margin requirement matters to you. They have the lowest requirements. IG Index is next in the list matching their offer for FTSE and even being better for DAX, but absurdly requires a very high margin for Brent. Finspreads and City Index are very penalizing with large requirements for every market. These companies require two-three times what Capital Spreads and Spread Co require in most markets. One point in favour of Finspreads and City Index is that they allow you to trade with just £0.50 in most markets allowing you to reduce exposure. But if you are concerned with the margin requirement stay away of Finspreads and City Index. I don’t mean these aren’t good providers. It’s just they don’t fit in the requirements of traders looking for low margins.