Newbie: Trading Futures?

[wayneL]

When using Interactive Brokers do the initial and maintance margins apply to a specific market or also the number of contracts per market. For example would margin for US e-mini (ES) differ depending on whether I bought 1 ... or 4 contracts.

Margin is per contract.

Each market has different margin requirements.

 

[marknz88]

Whats the deal with maintenance margins?

Ive just started trading the SPI the last few weeks with FPMarkets...When I enquired about needing to keep 12k in my account (6k for initial and 6k for maintenance) they said I only need to cover the initial margin?

Currently I'm only trading intraday, but am considering taking longer term positions as my account isnt large enough to weather getting thrown around with scalp sized trades. If im holding overnight, is that where the maintenance margin kicks in?

 

[cutz]

Initial to initiate trade, maintenance to maintain position.

You don't require sum of the two.

 

[marknz88]

When you say to maintain the position, how exactly does this work?

Say you have 10k account...initial margin = 6k so your utilizing 60% of your available margin

You have 40% margin/4k left in your account which you cant do anything with unless you trade another derivative with a smaller initial margin. Any movements during the day say from 4700-4600 result in a 2500 margin loss if you were to sell at 4600.

This has only affected your initial margin and now your total account size down to 7500? I dont see where the maintenance margin comes into play?

 

[sydney_hawka]

When you say to maintain the position, how exactly does this work?

Say you have 10k account...initial margin = 6k so your utilizing 60% of your available margin

You have 40% margin/4k left in your account which you cant do anything with unless you trade another derivative with a smaller initial margin. Any movements during the day say from 4700-4600 result in a 2500 margin loss if you were to sell at 4600.

This has only affected your initial margin and now your total account size down to 7500? I dont see where the maintenance margin comes into play?

To place a Trade, you must have the Initial & Maintenance Margin in your Account. That is all. If you choose to let your Losses run, then obviously you will have whatever else is in your account wiped out as well. The two Margins are minimum acceptable amounts to place a Trade. I hope this make sense.

 

[marknz88]

To place a Trade, you must have the Initial & Maintenance Margin in your Account. That is all. If you choose to let your Losses run, then obviously you will have whatever else is in your account wiped out as well. The two Margins are minimum acceptable amounts to place a Trade. I hope this make sense.

Thats how I thought it would work...

But I only started trading with 11k (short of the 12k for initial and maintenance for the SPI with FPMarkets..)

So when I purchase a contract I'm utilising just under 60% of my total margin with the initial margin, but I could also go and purchase a very small fx contract with the remaining 40% margin, thus leaving me with no maintenance margin what so ever.

Hence why I'm a little bit confused where it comes into play

 

[sydney_hawka]

Thats how I thought it would work...

But I only started trading with 11k (short of the 12k for initial and maintenance for the SPI with FPMarkets..)

So when I purchase a contract I'm utilising just under 60% of my total margin with the initial margin, but I could also go and purchase a very small fx contract with the remaining 40% margin, thus leaving me with no maintenance margin what so ever.

Hence why I'm a little bit confused where it comes into play

Your Margins seem a little excessive. I pay 2.4k in total to Trade the SPI with my Online Broker.

 

[sleepy]

Some answers here:

http://www.sonray.com.au/info/edu-futures-contract

Margin

Futures contract margins are set by the exchange on which the contract is traded. Exchanges use a system called SPAN (Standard Portfolio Analysis of Risk) to determine the margin level for each contract. SPAN is a computer model that calculates the range of possible changes in price for a particular contract. The "worst case scenario," i.e. the most adverse change in price with the position a trader holds, is then used to calculate the initial margin. For this S&P E-mini contract, the initial margin is USD 4,000/contract.

Futures contracts also have what is called a maintenance margin, i.e. the amount required to hold the open Futures position. For the S&P E-mini contract, the maintenance margin is USD 3,150. If the margin on the trader's account falls below the maintenance margin, additional funds must be transferred or the number of open contracts on the account must be reduced. The margin associated with a particular contract is subject to change.

 

[wayneL]

Your Margins seem a little excessive. I pay 2.4k in total to Trade the SPI with my Online Broker.

Whoa there Sapphire! Read Sleepy's link.

Once again we have to be explicit.

The "margin" of a futures contract is the overnight margin set by the relevant exchange.

Let's stick with my example of CL, the standard crude oil contract. Initial margin = $5,400 maintenance margin = $4,000.

(NB You only need the Initial margin to open a trade, not the sum of the two. However, if holding position trades in futures you should have far far more money that that at your disposal to make sure you are position sizing correctly.)

I will have to to have $5,400 in my account for each contract to be able to open a trade. Let's say I entered long 1 contract at $70.00. My total margin therefore is $5,400, I have $6,000 in my account so no problem. I have $600 of spare cash in my account.

For each dollar of movement I win or lose $1,000 on one CL contract.

Maintenance margin is the amount of margin required to keep the trade open whitout a margin call. That means that oil can close down $1.40 (5,400 - 4,000) and I won't have to tip in more cash to may account.

Let's say oil closes at $68.50 the next day, down $1,500. I've fallen below the $4,000 maintenance margin and require $100 more margin for this trade. But Lo! I still have $600 cash in my account, so $100 of that is allocated to the margin for the trade. MM is still maintained, but my spare cash has fallen to $500.

No margin call.

Let's say the next day oil closes down another $1.00 to $67.50.

We were already at maintenance margin the day before, therefore another $1,000 worth of margin must be allocated to this trade. But I only have $500 spare cash in my account.

Margin call time.

Broker rings and says, "Dude, we need another $500 cash to keep your margin at maintenance". You will therefore have to deposit the $500 into the account, pronto, or close the trade.

Some brokers have what is called "day margin". That is a reduced amount of margin requirement during the normal daytime session. With IB, day margin is 50% of the overnight margin.

So with IB I can open a crude contract with only $2,700 during the day session with $2,000 MM. So long as I close the trade before the end of the day session, that's all the margin I need (presuming MM isn't breached).

As soon as the session ends (or usually some minutes before the close), the margin reverts to overnight margin.

This is the type of margin sydney_hawka keeps referring to without explicitly stating that it is "day margin".

Some brokers have slashed day margins to very low levels in order to get day trader,s business. Quite a few offer e-minis at $500 and I've even seen $300.

But overnight margin is never lower than that set by the exchanges.

 

[marknz88]

Thanks Wayne, thats a great explanation of how it works!

 

[sunny_123]

it's interesting to view all threads and get the information from different traders. thank you all.

 

[sunny_123]

Using an online broker is enough for your needs. I assume you won't be trading large amounts of capital and you're a retail investor.



Yes if you plan to trade the US markets you will have sleepless nights and it might affect your day job. That is, 'if' you trade ... if you invest for the long haul then you might be able to sleep a little easier. But it can still be a harrowing experience, derivatives can move a very wide range in one trading day, and you could get wiped out if you don't have your stops/limits in place.

Right now, markets in the US usually open at about 12:30am or 1:30am Australian Eastern time for equities. So you will need to stay up late.

I would consider this in the context of how busy your lifestyle is, if you want to pick up overseas trading.

thank you for your advise. i will consider it seriously.

 

[sunny_123]

Yes, you can set up a paper account with IB - but you must first have a real account (which requires a 10k desosit). Data is free or for charge depending on the market. US markets are free, but you'll have to pay for most Asian and Euro data. The ASX is about $35 if I remember correctly.



Charts are usually measured in time, and the 4 hour chart is one the common ones. It means that every 4 hours a new data point will be formed (or a bar/candlestick).

thank you heaps