Every day, the CFD positions you hold will automatically be 'marked to market' by the broker. This is like a daily profit & loss account designed to make sure that the amount of money held on margin is always at the agreed percentage of your total exposure.
These adjustments are known as 'variation margin' and they take place on a daily basis.
» Example of variation margin
You buy a CFD equivalent to 3,000 shares at 400p, giving a contract value of £12,000. The initial margin on this is 20% of £12,000 = £2,400, and this amount will need to be deposited with your broker before you trade.
At the end of the first day, the market price has dropped 10p to 390p. The 10 point drop means that you have lost £300 (3,000 x 10p) and the contract value is now £11,700. The 20% margin requirement on £11,700 is £2,340, but you only have £2,100 left on margin, because £300 was lost from the £2,400 originally posted. The variation margin now due is therefore £2,340 - (£2,400 - £300) = £240.
On the second day, the shares stage a recovery, and the CFD price rises to 415p, an increase of 25p. That equates to a profit on your opening position of £450 (3,000 x 15p) and the contract value now rises to £12,450. 20% of £12,450 is £2,490 - your new margin requirement, but you're already ahead of that figure because £450 added to your initial margin of £2,400 is £2,850. Your broker will either release £360 from your margin account, or do the final adjustment when you close the position.
In practice, it would be impractical for clients to have to write a cheque to their broker every day. Most brokers will accept a bank guarantee from clients to cover margin, and provided they have this guarantee they will run your position without making daily margin calls. Alternatively, they will require additional liquid funds on deposit.
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