Margin Leverage and Position Sizing · CFDs Trading Guide

Required margin answers whether an order can be opened. Position sizing should answer whether the planned loss and a worse outcome are tolerable.

Define a cash risk budget first

Start with the amount the plan can allocate to an adverse outcome, not the largest order the platform accepts. Connect that budget to total portfolio exposure and financial capacity. A chosen percentage is a policy assumption, not a universally safe rule. The budget should include plausible costs and acknowledge that ordinary stops can slip.

Convert distance into money

Suppose an illustrative risk budget is $150. The intended exit is 20 points from entry and each contract is worth $2 per point. Planned price risk is $40 per contract. Reserving $10 for total additional costs leaves $140, so no more than three whole contracts fit the simplified budget. Their planned price risk is $120, or $130 including the reserve.

Stress the execution

If the exit occurs 35 points away because of a gap, those three contracts lose $210 before costs. Position sizing from a stop is an estimate, not a guarantee. Test wider exits, increased spreads and correlated losses elsewhere. A contract minimum can make a market unsuitable for the risk budget even when margin is affordable.

Let the thesis determine the exit

Do not move a stop closer merely to justify a larger position. Choose a meaningful invalidation condition, estimate its price distance and then calculate size. If the resulting exposure is too small to be practical, skip the setup or study another instrument. Recheck margin as an additional constraint after the risk calculation.

Try it yourself

The budget is $100 and the cost reserve is $12. Each contract has a 14 point stop distance at $1.50 per point. How many whole contracts fit, and what is the planned total risk?

Show the worked answer

Each contract risks $21 before costs. The remaining $88 allows four contracts, for $84 of price risk and $96 including the reserve. Gaps can still exceed that planned amount.

Further reading

Educational material, not a recommendation to trade. Numerical examples are hypothetical. CFDs involve leverage and substantial risk of loss. Availability, costs and protections depend on the contract, legal entity, jurisdiction and client classification.

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