Margin Trading

Margin trading enhances gains and losses with investors borrowing funds from their broker to make trades. However, the level of margin and leverage available varies in line with UK rules and requirements. This guide to trading on margin unpacks examples, interest rates and fees, plus risk management strategies. Our team also list the best margin trading accounts and platforms in 2025:

Margin Trading Explained

Margin trading lets you buy securities using funds borrowed from a brokerage. Platforms typically express leverage either as a ratio or percentage to indicate the required margin you must stake. For example, a 1:10 or 10% leverage says that your exposure is equal to 10x your initial investment. In this instance, you would only need to stake £100 to open a £1000 position.

This means you can make significant profits even from small, short-term price movements. If you opened a position with £100 and the price moved in your favour by 1%, you would earn a profit of £1 (£100 x 0.1%). If you opened the same position with 1:10 leverage, you would earn £10 in profit (£1000 x 0.1%), minus any fees.

However, the same features also make it risky as losses are magnified. Returning to the example, the reverse is true if the price moved against you – your losses would be £1 and £10, respectively. As a result, the amount of leverage available varies depending on the volatility of the asset and your status as a retail or pro trader.

Several top-rated UK brokers offer margin trading calculators. Use the margin calculator at XM to determine the margin needed to open and maintain positions.

FCA Rules

For retail investors in the UK, there are restrictions placed on the maximum leverage available when trading on margin. These are limits imposed by the Financial Conduct Authority (FCA) that all registered brokers must abide by.

• Major forex pairs: 1:30 / 3.33% / 30x
• Minor and exotic currency pairs, major stock market indices and gold: 1:20 / 5% / 20x
• Minor stock market indices and non-gold commodities: 1:10 / 10% / 10x
• Stocks and government bonds: 1:5 / 20% / 5x

Note, the FCA placed a ban on cryptocurrency derivatives in 2021, meaning that crypto margin trading is not possible at brokers authorised in the UK. With that said, British traders can turn to offshore platforms, though they may lose the protections afforded by the FCA.

Also, traders that qualify for a professional account may be able to access higher rates up to 1:500.

Negative Balance Protection

In 2015, the Swiss National Bank surprised investors by taking the decision to rescind a cap on the Swiss Franc (CHF) that had held it to a rate of 1.20 CHF to 1 Euro (EUR). The move shocked the markets, and as CHF prices rapidly soared, many traders with leveraged positions found themselves indebted to their brokers as the price moved beyond expectations.

The FCA introduced negative balance protection for all retail clients in response to the CHF debacle. This protective measure states that clients cannot make losses exceeding the funds that have been deposited into their brokerage account.

Note that this does not include other investments and unrealised profits – it is limited to the cash in the client’s account only. Also, while all FCA-regulated brokers must implement negative balance protection, brokers that aren’t regulated by the FCA may not.

Margin Call

There are limits to the amount you can lose when margin trading before the broker takes action and potentially closes your positions. The mechanism that happens in this situation is called a margin call.

A margin call occurs when the margin level across your open positions declines past a minimum maintenance requirement. This will happen if your losses grow to such a degree that your broker believes them to be too large in proportion to your account equity.

Equity is equal to the funds deposited in the account plus securities as well as the profits and losses from currently leveraged positions. Note that brokers have different margin requirements. For instance, Pepperstone has a maintenance margin level of 90%, whereas CMC Markets set their maintenance level at 80%.

Importantly, a margin call is a notification or warning. You will be asked by your broker to either deposit additional funds or sell other assets to increase the margin level. If that does not happen, the broker will close open positions until your margin level comes back within the maintenance requirement.

Margin Levels on MT5

Stop-Out Level

Stop out is the process by which a broker closes positions if a trader is unable to sustain the margin. This happens after a margin call if you are unable to add funds to reach the minimum requirement. Typically, the broker will begin the liquidation process by closing your worst positions.

The margin stop-out level is usually set to 50%.

Pros Of Margin Trading

• More buying power to speculate on popular financial markets
• The best brokers offer competitive margin rates and fees
• Many brokers and platforms facilitate margin trading
• Opportunities to generate larger profits

Cons Of Margin Trading

• Increases risk exposure
• Limits on the maximum leverage you can access with FCA-regulated brokers
• Margin trading with brokers that do not offer negative balance protection can lead to losses that exceed your capital

Risk Management

Because of the potential to accumulate significant losses in heavily leveraged positions, practising good risk management is key while margin trading.

Stop loss and take profit orders are two ways to reduce your risk exposure. Some traders also use wallet-management strategies such as the 1% method to avoid staking too much of their capital on a single position.

Stop Loss

Stop loss orders will automatically close a trade once losses reach a certain level. The trader decides the amount of loss they will tolerate before the stop loss is triggered. The aim is to prevent losses from becoming unmanageable, potentially leading to a margin call.

Stop loss strike prices are determined either using a percentage or number of points away from the current price. To demonstrate how a stop loss order works, here is an example on AstraZeneca…

Assume that you open a long CFD position on AZN stock at 12:10pm on 15 February 2023. At this time, AZN is priced at 11,455 GBx and you place a stop loss 55 GBx lower at 11,400 GBx. In this example, the order is triggered at 10:00am the following day, causing a loss of 55 GBx. In this case, the stop loss saved the trader further losses, as over the next few hours the price of AZN continued to decline.

One popular variant often used in margin trading is a trailing stop loss. This order will make an adjustment to the strike price if the market moves favourably.

Let’s take the previous example and the original strike price with a gap of 55 GBx. After the order is opened, the price of AZN increases and reaches a peak value of 11,605 GBx just after the market opens on 16 February.

The trailing stop loss trigger could have followed this trend and increased to a value of 11,550 GBx. As this is higher than the price of AZN at contract open, you would secure a profit a few minutes later when the stock’s value drops. The difference between using a trailing stop loss and a normal stop loss in this example is a profit of 95GBx rather than a loss of 55 GBx.

Take Profit

A take profit order will secure returns from a winning position. If the market moves favourably, your position will be automatically closed, in part or in full, if the asset’s price reaches a certain amount.

The chart below is a graph of Lloyds stock (LLOY) traded on the London Stock Exchange. Assume you open a long CFD trade at the beginning of the trading day on 10 February 2023 at 08:00 when LLOY is valued at 53.2 GBx with a take profit order set at 53.9 GBx. Soon after this, the market trends upwards and LLOY increases until it reaches the 53.9 strike price around 08:30. At this point, your platform would automatically close the trade and secure the profit, protecting you against the bearish trend that reverses LLOY’s stock, bringing its price to 53.0 GBx by 11:00.

Note that while stop loss orders work under normal market conditions, they are not guaranteed. If the market lacks liquidity, it may not be possible to fill your order at the price you set.

One Percent System

A trader who practices the 1% money management strategy will only ever stake a maximum of 1% of their total capital on a single trade. This limits the amount of capital at risk in any one position, with the tradeoff that it will also limit the profit potential of each position. Nonetheless, it can help reduces the risk involved when trading frequently and with high volatility.

How To Compare Margin Trading Brokers

Markets

Before you start margin trading, determine the markets that you want to invest in. For instance, if you know you want to trade cryptocurrency such as Bitcoin on margin, you could use dedicated DeFi exchanges such as OKX. Alternatively, look for crypto brokers such as IC Markets that offer margin trading on a range of popular cryptocurrencies with various safeguarding measures and a better track record than exchanges.

On the other hand, if you are unsure what markets are best suited to your trading style and strategy, find a brokerage that offers a wide range of assets. For example, Pepperstone supports margin trading on stocks, indices, ETFs, commodities and bonds.

Trading Vehicles

Some of the most popular derivative products that retail investors use for margin trading include:

• CFDs – Contracts for difference, or CFDs, are one of the most popular leveraged trading vehicles available on the retail market. They allow traders to go long or short on assets without actually buying or selling them.
• Spread Betting – A similar trading vehicle to CFDs, spread betting also involves speculating on assets’ price movements without directly buying and selling them. A benefit of spread betting for UK traders is that profits from this derivative are usually tax-exempt.
• Futures – Online brokers such as Interactive Brokers offer futures contracts. Futures are the original type of derivative, giving the trader the right to buy or sell an asset at a specified price on a future date.

Trading Platform

Your online trading experience will be greatly influenced by the platform you use. This is where you analyse assets’ price movements on charts, set up and execute trades, and monitor your open positions. You should therefore aim to choose a platform that comes with various indicators, tools and charting options so you can conduct analysis and make informed trading decisions.

Many brokers with margin trading provide access to leading platforms such as MetaTrader 4 and MetaTrader 5. Others, such as eToro, only offer their own platform. CMC Markets is among the margin trading brokers that allow clients to choose whether they use the broker’s proprietary platform or trade using MT4 through their computer or as mobile apps.

Demo Account

Margin trading is a high-risk activity so it is important to be confident in your strategy before you stake real money. A useful way to develop a strategy is through gaining practical experience, which can be done through demo accounts. These act as a simulator to replicate live trading sessions, allowing you to practise trading on margin risk-free while also getting used to the platform.

Fees

Find a broker with a fee structure that suits your margin trading strategy or investment style. Charges typically include commissions, bid-ask spreads, deposit and withdrawal fees and inactivity penalties.

Importantly, you should also be aware of swap rates, which are interest rates paid on positions that are held overnight. The amount you are charged will be impacted by the asset you are trading, how many days you are trading for and your side (long vs short). Depending on your strategy, this may not be important. For example, if you plan to close positions the same day they are opened, you will not be subjected to overnight holding fees.

Regulation

The best margin trading brokers in the UK are regulated by the Financial Conduct Authority. The UK regulator mandates various measures designed to protect investors, from limits on leverage to negative balance protection, investor compensation schemes and restrictions on misleading promotions.

If you want features that are not available through an FCA-regulated broker, such as higher leverage, it may be possible to find a firm that is regulated by a foreign regulator. Some of the best-known are FINRA in the US, ASIC in Australia, and CySEC in Cyprus.

Bottom Line On Margin Trading

Margin trading can be profitable, but it also carries risks. For this reason, make sure you understand the advantages and disadvantages of trading on margin before you start. Register for a demo account with your chosen broker to test out different strategies, whether you are investing in crypto, stocks or any other market. Many brokers also provide free liquidation, profit and margin calculators.

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