Q. “Hi Timon, on my trading platform, I was shocked to see one CFD to buy the JSE ALMI 40 was R10,082. I was even more shocked when I saw the JSE ALSI 40 contract was R100,720.  The thing is, I want to trade the JSE index but why is the margin so high?

A. Hi J* thank you for the question.

You will be glad to know there is another option to trade the JSE Top 40 index.

On your platform you should find the Top40.X.JSE CFD. This is a CFD that is simply based on the JSE Top 40 index.

The margin (initial deposit) on this CFD is only 2% compared to the 15% on the JSE ALMI 40.

Here’s an example on the difference in margin :

Let’s say the JSE Top 40 is currently trading at 67,128.

With the JSE ALMI 40, you’ll need to put in a deposit of 15%. That’s R10,069.

With the JSE Top 40 CFD (Top.X.JSE CFD) your deposit is only 2%. That’s R1,342. (2% X 67,128).

Q. “Timon can you give me an idea of how much money I would need to trade the JSE Top 40 index (Top40.X.JSE CFD)?

Some say, R1,000, others say R5,000 and other analysts say I don’t need anything to trade.

Which is right?”

A. Unfortunately, none of those are the correct answers. It depends on various factors.

First, you need to know what the minimum account balance is to open a trading account. With Velocity Trader it is around R25,000.

Second, you’ll need to ask yourself: “How many markets are you looking to trade?”.

If you’re looking to trade ONLY the JSE Top 40 CFDs then all you need to look at is the margin requirements.

Right now the market is trading at 67,128, and the margin (initial deposit) is 2%.

But there could be times where you might need to buy or sell 7 – 10 CFDs, based on where your stop loss is. So, the initial deposit for a trade could go up to R9,394,00 or R13,420.00. You will need this extra money in your account to trade a number of CFDs.

Then there’s something called the Maintenance Margin…

Maintenance margin is the amount of money you need in your account to keep your trading positions open.

These are based on percentages of the exposure of the contract.

You can ask your broker or look at the symbol information in your trading platform.

For example, with Velocity Trader – the Maintenance margin to trade the JSE Top 40 CFD is 1.11%.

This means, if you bought one CFD with the initial deposit of R1,342. And you’re exposed to the full index at 67,128 – Then you’ll need to have in your account at all times at LEAST R738,40.
And if you buy or sell up to 10 contracts, you’ll need to have in your account AT least R7,384.00.

So, for this reason, I would say the absolute minimum to make trading the JSE Top 40 CFDs worthwhile is R25,000 to R50,000.