The practice of raising the margin percentage as a position grows, so that larger exposures in one instrument require proportionally more collateral than small ones.
Brokers tier margin because the risk of their own hedge grows faster than position size in a thin instrument. A first tranche might attract the headline rate, the next a higher one, and very large positions considerably more. Tiers are usually per instrument and cumulative across an account rather than per ticket.
The effect is easy to miss when scaling in. A trader who checks margin-requirement on the first tranche and assumes it is linear can find that tripling the position more than triples the used-margin, leaving less free-margin than planned.
Firms also raise margin temporarily ahead of elections, referendums and major central bank decisions, and around index rebalances, sometimes with only a day or two of notice.
Example: 20% margin on the first $50,000 of a share CFD, 30% on the next $50,000. A $100,000 position requires $10,000 plus $15,000, an effective 25% rather than the headline 20%.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Educational only, not advice. Spotted an error? Post in Site Feedback.