What is deposit margin?
If you trade through a broker in stocks, shares, contracts for difference, commodities or any other asset you can buy 'on margin', which means with borrowed money. To do that, you'll need to put down a deposit. The deposit margin is how much you have to put down and it's calculated as a percentage of the price of the security you want to buy.
Where have you heard about deposit margin?
Anyone who's looked into the history of trading will know that buying on margin was very common in the late 1920s. It's said around 90% of stock purchases were made on margin then and this contributed to the stock market crash in 1929.
What you need to know about deposit margin...
The deposit margin is also an indicator of how much, or how little, of the current value of your investment you actually own.
For example, say a security is trading at £100, with a deposit margin of 4%. If you want to buy 40 shares – valued at £4,000 – you'd be required to pay a deposit margin of £160 (4% of £4,000).
Trading on margin is considered higher risk. If the value of your stock falls, you could be required to top up your deposit. This is known as a margin call.