no, only good to trade the SPY over the ES if you got $50,000 in your account compared to $5,000.00...SPY is slow as a dog on a humid August afternooon
Can you lose more than the Initial Margin?
- Thread starter Wolfgang1756
- Start date
how did Chernobly affect Grains?...serious question
Most futures brokers do in fact have circuit breakers that will close your positions in the event that your taking a huge fast hit. Their programs detect the momentum and speed of the move the market is making(among other variables) and calculate right time to liquidate your positon(s).
This happened to me when I was first starting to trade live a few yrs ago( I was a newbie) , and had overleveraged way too much on my long position in the middle of the day(thats right!..NOT during premarket hrs!). Anyway, there was a FED meeting that day concerning change of interest rates coming at 1pm, and low and behold, the market did not like what it heard and plunged like a free falling elevator with a one way ticket to hell !!
I got wiped out of $10,500.00 in 8 sec flat !!
My broker(OpenECry at the time)managed to liquidate quickly enough where I ended up in the hole for just over $575.00.
So I had to wire them that amt the next day to break even with them.
That was a very hard lesson learned that day, one I will never forget......
This happened to me when I was first starting to trade live a few yrs ago( I was a newbie) , and had overleveraged way too much on my long position in the middle of the day(thats right!..NOT during premarket hrs!). Anyway, there was a FED meeting that day concerning change of interest rates coming at 1pm, and low and behold, the market did not like what it heard and plunged like a free falling elevator with a one way ticket to hell !!
I got wiped out of $10,500.00 in 8 sec flat !!
My broker(OpenECry at the time)managed to liquidate quickly enough where I ended up in the hole for just over $575.00.
So I had to wire them that amt the next day to break even with them.
That was a very hard lesson learned that day, one I will never forget......
In conversation with a well known grain trader 20 years ago he told me about Chernobyl. Contrary to what most think it is actually not in Russia but in the Ukraine which has been Russia's bread basket for centuries. Russia's supply of wheat was always dependent on the harvest in the Ukraine.
Many pros were short the entire grain complex expecting continued surplus when reactor four blew releasing more than a hundred times the fallout from Hiroshima. From second one everyone knew this was a huge disaster. There was no way to cover. Since societies substitute one grain for another in a pinch many traders were wiped out who were not even short wheat. The solid traders with a real history were staked by their clearing firms to get back in but anything less than an A trader had a hard time.
I have never gone back to look at the charts leading up to April of '86 but the trader who told me was (he's not still alive) a reliable source. His final comment was the better you were at trading the heavier your short position was.
Many pros were short the entire grain complex expecting continued surplus when reactor four blew releasing more than a hundred times the fallout from Hiroshima. From second one everyone knew this was a huge disaster. There was no way to cover. Since societies substitute one grain for another in a pinch many traders were wiped out who were not even short wheat. The solid traders with a real history were staked by their clearing firms to get back in but anything less than an A trader had a hard time.
I have never gone back to look at the charts leading up to April of '86 but the trader who told me was (he's not still alive) a reliable source. His final comment was the better you were at trading the heavier your short position was.
?????? Huh?
In '87 the market crashed by more than 25% percent. That's over 2,500 points at today's levels. You are making some dangerous assumptions.
Do yourself a favor. Buy far out of the money options to hedge your positions. You won't have to pay much premium. You may go a long time before they are needed but when they are needed its going to be a life saver. You will still take a heavy loss but you should be able to survive.
Quote from Wolfgang1756:
I am thinking of trading Futures, more specifically the ES - Mini S&P 500 and I have a question.
The Initial Margin for this contract is $5625. Now suppose I have $7000 in my account I buy one contract at 1100.
Overnight something terrible happens and the S&P 500 opens at 800 and never goes about 800 the whole day. So I have lost 300 points at $50 each = $15,000.
So what is my liability? Is it just the margin of $5625? Or the actual amount of $15,000? I assume that my position would be immeadately liquidated at the open, correct?
If I am liable for the full $15,000 and my account only has $7,000, what happens to the rest of the $8,000? If had some other stocks worth say another $2000, could they sell those too? Can they sue me for the rest???
in general, a broker will try to close you out before that happens
but, in uncommon events, such as futures going limit up or down overnight, or a '911' during a period when afterhour futures arent running, with lock out until the next market open, andything can happen, and yes you will be liable for the underwater portion
after all you were planning to keep the windfall, had it gone the other way
werent you?
covering margin is a *mutual* responsibility
One of the reason some well off traders have multiple accounts is because they will use one or two to concentrate their most speculative positions (overnight holds) and another one or two for their more conservative positions (daytrades, spreads etc.).
They will never keep significant sums over their margin requirement in the speculative accounts so that if they blow up the broker does not have funds to offset against. If there is a blowup and they owe the broker $100,000 they offer to give them $60,000 for a general release of liability. Since the broker will probably have to part with at least $20,000 to a lawyer, take a hit to their capital and wait many months to be made whole he'll come back with a counter offer of $80,000 and probably take $70,000. The scum bag customer saves 30 large.
It sucks that men of substance will calculate leaving someone else with the bag that their decisions created but it is a technique that has been used forever.
And, to answer the OP's question: You are responsible, as the British say, right down to your last cuff link.
They will never keep significant sums over their margin requirement in the speculative accounts so that if they blow up the broker does not have funds to offset against. If there is a blowup and they owe the broker $100,000 they offer to give them $60,000 for a general release of liability. Since the broker will probably have to part with at least $20,000 to a lawyer, take a hit to their capital and wait many months to be made whole he'll come back with a counter offer of $80,000 and probably take $70,000. The scum bag customer saves 30 large.
It sucks that men of substance will calculate leaving someone else with the bag that their decisions created but it is a technique that has been used forever.
And, to answer the OP's question: You are responsible, as the British say, right down to your last cuff link.