Bonds risks and margin

[salamanderforex]

Thanks for the good suggestion.

You are going to have to provide liquid cash for your daily margin requirements regardless.

If this ^^^ is true then the whole bonds thing is out of question if it can't be used as collateral for margin. Are you sure?

And if, as you suggest, you will be trading “high risk” products and strategies most of what you’ve been getting at is immaterial.

Why do you say "immaterial"? as in, the income from bonds is very little compared to earnings from high risk trading? (because that won't make sense to me as it's still some income regardless and unrelated to trading strategy).

 

[Sig]

If I can make a suggestion: contact an FCM customer rep, honestly tell them what products and time frames you will be trading, and inquire about using a Treasury Bill or Note as collateral. You are going to have to provide liquid cash for your daily margin requirements regardless. All of this is rather speculative otherwise. SIG is likely not trading the same markets as you are - and if, as you suggest, you will be trading “high risk” products and strategies most of what you’ve been getting at is immaterial.

I agree. As an FYI, I'm trading mostly index options and a little bit of FOPs.

 

[bone]

I can only speak for a futures account - but yes, no FCM is going to let you trade futures effectively using the firm’s own funds for your personal account risk margin on an intraday basis. No bueno. Even when I carried T-Bills in my futures account I also carried at least 25% of the equity balance in cash at the FCM’s insistence.

Thanks for the good suggestion.


If this ^^^ is true then the whole bonds thing is out of question if it can't be used as collateral for margin. Are you sure?


Why do you say "immaterial"? as in, the income from bonds is very little compared to earnings from high risk trading? (because that won't make sense to me as it's still some income regardless and unrelated to trading strategy).

 

[salamanderforex]

I agree. As an FYI, I'm trading mostly index options and a little bit of FOPs.

Thanks for the FYI.

FOP = Free of Payment transfer method? If yes, how is that trading? Some arbitrage between brokers?

 

[Sig]

Thanks for the FYI.

FOP = Free of Payment transfer method? If yes, how is that trading? Some arbitrage between brokers?

Sorry, options on futures. Different risk profile to the broker than what you're probably talking about, which is more along the lines of what @bone is saying. He knows far more than me in that area so I'd go with what he says.

 

[salamanderforex]

Sorry, options on futures. Different risk profile to the broker than what you're probably talking about, which is more along the lines of what @bone is saying. He knows far more than me in that area so I'd go with what he says.

Thanks.

@bone is making concise points; I see that. I have to learn a lot more about bonds. For example I don't even know if bonds are FCM. I am assuming they are given the name.

 

[bone]

FCM = Futures Commission Merchant.

An FCM in the United States is regulated by the Commodity Exchange Act and a slew of regulations by the CFTC, the NFA, and the trading exchanges themselves. And as you might guess there are plenty of regulations about customer intra day risk margins and liquidity.

Commercial customers (usually hedgers) are under certain conditions allowed to extend property and securities as collateral. So - think Valero Refining or Rio Tinto Mining.

Thanks.

@bone is making concise points; I see that. I have to learn a lot more about bonds. For example I don't even know if bonds are FCM. I am assuming they are given the name.