100:1 intra day margin. How can a broker offer ?

bidask201 · Jul 2, 2012

I see these 100:1 intraday margin offers for ES. What I don't understand is why didn't some futures brokers go bankrupt on the flash crash day with this.

While some who use that 100:1 might actually not be net worth leveraged at all and just use it to have the rest of their money fdic insured, it must surely attract some people who bet everything they have.

It seems clear to me you can't guarantee some auto-liquidation to have a non negative balance per account on a big jump move even if say the program liquidates an entire position when there is just a .5% ES move which for someone at the edge would be double what is required.

Are you required to have an initial (regulatory) margin of roughly 10% for each margin contract ? This would mitigate it somewhat but I can still see some states that are almost as bad.

So how can a broker offer 100:1 ?

Random.Capital · Jul 2, 2012

Bucket shop.

Traveler · Jul 2, 2012

They can offer that because there is no intraday margin requirement by the exchange, since it is figured at night for whatever positions the member firm is holding.

I'd bet they're going to watch your account like a hawk if they give you that big of a line.

NetTecture · Jul 2, 2012

Quote from Traveler:

They can offer that because there is no intraday margin requirement by the exchange, since it is figured at night for whatever positions the member firm is holding.

I'd bet they're going to watch your account like a hawk if they give you that big of a line.

No need to watch like a hawk - computers lock you out in less than a second when you loose too much and get into the margin, simple like that.

Random.Capital · Jul 2, 2012

How small are the accounts allowed to be? At 100:1 you're potentially looking at, what, wiped on a 2-handle move?

Not sure the orders are even worth placing...

Traveler · Jul 2, 2012

The OP is using forex terms for futures margin. I assume he's talking about 100:1 on the notional to a $500-1000 intraday margin.

atticus · Jul 2, 2012

The $500 intraday haircuts are something like 135x. They will cut you off at a $300 loss per contract.

stephan31 · Jul 2, 2012

Quote from atticus:

The $500 intraday haircuts are something like 135x. They will cut you off at a $300 loss per contract.

------------------
This!

peace

hedvig

southbeach4me · Jul 2, 2012

Quote from atticus:

The $500 intraday haircuts are something like 135x. They will cut you off at a $300 loss per contract.

some brokers will let you lose more before the auto liquidation button is pressed by them.....to allow for possible market reversals. very risky if you don't know what you're doing

just sayin....

bidask201 · Jul 4, 2012

I probably did not make my point clearly enough.

If the market is a continuous random process both delta hedging and auto liquidation will work.

However to the extent it is a jump process at times like arguably the recent 'Merkel spike', you cant guarantee to make large trade at average 1/2 of the jump (.5%), during the 1% jump.

This thread highlights the 'Merkel spike' though I dont agree with everything in the thread:
If you look at this other post http://www.elitetrader.com/vb/showthread.php?threadid=245366

Another way of looking at this is stop loss slippage. Suppose brokers had stop limits sitting on globex for certain clients who were actually 100+:1 as the auto liquidation (likely fastest) during the flash crash. Some client accounts at some futures brokers probably ended up with negative equity that day.