What is Marked to Market & Variation Margin in CFDs?

Submitted by Share Trading on 11 February, 2010 - 13:02

Learn about Marked to Market & Variation Margin in CFD Trading

The variation margin and the concept of marked to market is more important than your CFD margin requirements. The variation margin is your daily profit or loss on a CFD trading position. At the end of each day (the time varies depending on the broker, some defines their end of day as GMT 00.00) any profit gain is credited to your trading account or any losses is deducted from your trading account. The term "Free equity" is used to define your absolutely free cash in your trading account after your margin requirements is taken into account.

To explain the concepts: marked to market, variation margin and free equity here is an example: If you deposit $10,000 into your trading account and you have $25,000 worth of CFD positions at 10 percent margin, then your initial margin requirement is $2,500 leaving $7,500 worth of free equity when you first enter your CFD position. If your position. If your position moves in your favour by $500, your free equity will fall to $8,000. If your trading position moves against you, your free equity will be $7,000. Your margin requirement will also change if you are in profit or loss depending on the value of the stock.