So, you are saying you expose all your other customers, clearer, other exchange members and the exchange itself to elevated risk levels just because you decided to game the system?you are well aware that the exchange mandated margin levels were designed to protect the market from rogue players like you yet you game the system by just requiring the margin as mandated by the exchange during 5 minutes in any given day? That is ridiculous and such loophole should be shut.
AMP Margin for Positions opened in night times
- Thread starter cutetrader
- Start date
Well, as long as the broker can cover the exchange-mandated requirements without having to pass them on to the customer in the form of higher margin requirements, what is the issue?
For starters, Another flash cash or alike will be the issue. Imagine you have a 10k account and trade 20 ES contracts. Margin wise you are covered (ignore for a second that you leave zero room for an unrealized loss of any kind or that you expose your account to insane risk).
Now, if ES drops 100 or 200 points in a matter of seconds/minutes (we have been there) and nobody is willing to buy a single contract Amp is on the hook for many tens of thousands of dollars to meet margin calls by the Exchange. Multiply that by X accounts Amp runs and allows traders such margin levels.
First of all, you will ultimately be on the hook for losses should the exchange force to liquidate such positions the second buyers step in at very low price levels, even if your account cannot cover such losses. Secondly, if Amp cannot immediately cover all the losses at first they will simply be forced out of business and at best all other investors and traders with Amp will in the best case scenario be unable to withdraw any funds and have to wait for months/years until this issue settles in court or out of court. At worst every other customer will be on the hook as well and receive cents on each dollar, invested.
That is what happened several times with FCMs and brokers who allowed clients to lever up beyond exchange mandated limits. There is a reason no exchange has ever gone bankrupt but a number FCMs and numerous brokers.
Now, if ES drops 100 or 200 points in a matter of seconds/minutes (we have been there) and nobody is willing to buy a single contract Amp is on the hook for many tens of thousands of dollars to meet margin calls by the Exchange. Multiply that by X accounts Amp runs and allows traders such margin levels.
First of all, you will ultimately be on the hook for losses should the exchange force to liquidate such positions the second buyers step in at very low price levels, even if your account cannot cover such losses. Secondly, if Amp cannot immediately cover all the losses at first they will simply be forced out of business and at best all other investors and traders with Amp will in the best case scenario be unable to withdraw any funds and have to wait for months/years until this issue settles in court or out of court. At worst every other customer will be on the hook as well and receive cents on each dollar, invested.
That is what happened several times with FCMs and brokers who allowed clients to lever up beyond exchange mandated limits. There is a reason no exchange has ever gone bankrupt but a number FCMs and numerous brokers.
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This is not unique to AMP, many do this. The exchange mandated margins are based on historical DAILY volatility. It makes sense that lesser time frames would have lower margin requirements.
Robert Morse
Sponsor
We offer up to 4X SPAN for DT.
Except those are not lesser time frames. One just has to ensure not to hold during those 5 minutes, otherwise one can have the privilege to be fully exposed at maximum risk to any future flash crash or the like at all times. And true, a few other players engage in the same games to fish for undercapitalized clients.
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How did you do during the last flash crash? How did you liquidate the accounts without being able to trade out of positions during extreme stress? Or were you (and all ohers) let off the hook by the exchanges in that the exchanges did not call in variation margin when they actually should have?
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Robert Morse
Sponsor
If you were the risk manager of an FCM, what would you offer an account with $50,000 in cash that goes out flat each EOD, and only day-trades, where the CME requires $5,225/contract only if the client holds that contracts into the next session? What is the right thing to do according to you Zzzz1?
Keep in mind that you have to run a business where clients want to do business with you, or your business shuts down. For DT, you have no capital that needs to be put to margin by your FCM. This is the most sort after type of account because they do out flat have have no cap hit. How would you attract this business?
(I'll give you a hint. The smaller FCMs can't finance large overnight positions as they have to put up 8% of your margin with their funds. They can't attract large accounts because they want bigger balance sheet. DT is the low hanging fruit that pays the bills)
The right thing to do would be to require a reasonable margin at all times. No exceptions, no day session, no night session. Robert, you are perfectly aware and know that this whole concept of day and night session is totally out-dated and does not reflect reality anymore, don't you? In fact, most international index futures contracts on almost every exchange are traded well beyond the local day session, only. Whether CME, Osaka/Tokyo, Hong Kong, Korea, Singapore, Australia,...hence making a difference between a day session and night session makes zero sense and should be abolished. Again, this is only something the US exchanges hold onto. But hey, let's assume they keep it unchanged.
Keep in mind, the past has shown that flash crashes or global event risk does not care whatsoever whether the US is currently in an exchange day session or not, meaning, you as trader and you as FCM are exposed to such event risk at any time, day and night. Hence, it makes zero sense to charge different margin as function of day or night session.
500 dollars for 1 ES contract is way too low, no matter how you argue. I say that because a 100 point move in ES, something we did in fact witness several times before would hit you with around 5000 USD. During the flash crash SPX sold off 7% within 15 minutes with hardly a single bid in the market. That would today translate into a 160 point loss without even the slightest chance to get out of the position. In light of that you still believe a 500 dollar margin is sufficient?
You alluded to the point where you ask how an FCM is to attract customers. Well, you do know I am highly critical of the benefit of FCMs. I do not see after all where you guys add much value at all in this whole equation. You basically suggest your value added right now is to provide artificially low margin, exposing clients and even your risk prudent customers to elevated risk. But my FCM criticism aside, at least you can be honest in that you are very clearly fishing for undercapitalized traders, and yes charging 5000 dollars for 1 ES contract will not be very competitive in that specific regards. (But it will be the prudent thing to do in order to withstand the next Black Swan).
Summary: You perfectly proved my point with your previous post. I know you cannot say it, but in fact you said it: FCMs provide very little benefit or value added, beyond providing undercapitalized traders with low upfront payment to swing larger positions. The reaper is waiting around the corner, the next flash crash will again take with it a number players who engaged in this game. It is simply not healthy nor prudent in a well functioning financial industry to have such players around. Unfortunately those who regulate are either clueless, have their interests aligned with brokers/FCMs/IBanks, are completely behind the curve, or a combination thereof.
Keep in mind, the past has shown that flash crashes or global event risk does not care whatsoever whether the US is currently in an exchange day session or not, meaning, you as trader and you as FCM are exposed to such event risk at any time, day and night. Hence, it makes zero sense to charge different margin as function of day or night session.
500 dollars for 1 ES contract is way too low, no matter how you argue. I say that because a 100 point move in ES, something we did in fact witness several times before would hit you with around 5000 USD. During the flash crash SPX sold off 7% within 15 minutes with hardly a single bid in the market. That would today translate into a 160 point loss without even the slightest chance to get out of the position. In light of that you still believe a 500 dollar margin is sufficient?
You alluded to the point where you ask how an FCM is to attract customers. Well, you do know I am highly critical of the benefit of FCMs. I do not see after all where you guys add much value at all in this whole equation. You basically suggest your value added right now is to provide artificially low margin, exposing clients and even your risk prudent customers to elevated risk. But my FCM criticism aside, at least you can be honest in that you are very clearly fishing for undercapitalized traders, and yes charging 5000 dollars for 1 ES contract will not be very competitive in that specific regards. (But it will be the prudent thing to do in order to withstand the next Black Swan).
Summary: You perfectly proved my point with your previous post. I know you cannot say it, but in fact you said it: FCMs provide very little benefit or value added, beyond providing undercapitalized traders with low upfront payment to swing larger positions. The reaper is waiting around the corner, the next flash crash will again take with it a number players who engaged in this game. It is simply not healthy nor prudent in a well functioning financial industry to have such players around. Unfortunately those who regulate are either clueless, have their interests aligned with brokers/FCMs/IBanks, are completely behind the curve, or a combination thereof.
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Robert Morse
Sponsor
BTW, I don't think you responded as to what you would offer. SPAN, higher than SPAN, a little less? And the distinction for DT is NOT night and day. It is session to session. For ES, 5pm CT to 3:15 CT in one "day". The CME requires the initial margin based on your positions during that flip from one day to another and then to maintain the maintenance margin after, but calculated based on the end of that "day".
O, and you don't have to teach me about market crashes and risk. I traded for my own account during the 87' crash, '89 crash, tech blowup and down in 1999/2000, 9/11 and every other event from 1985 until 2010.
So again, what would YOU offer to clients!
O, and you don't have to teach me about market crashes and risk. I traded for my own account during the 87' crash, '89 crash, tech blowup and down in 1999/2000, 9/11 and every other event from 1985 until 2010.
So again, what would YOU offer to clients!