ES Margin Increase

[Robert Morse]

Actually 10% is the new 25%

I would never offer that. I know some smaller FCMs will offer $500 margin on ES for DT, as it is the only way anyone would do buiness with an FCM with under $10mm is capital. I think it is very dangerous.

 

[aquarian1]

Has anyone seen ES overnight margin increase during fast moving market events like May 2010, Aug 2015, Brexit, etc? If so, by how much did margin increase? Did your broker close your positions, or did you have time to wire money? I'm particularly interested in IB, TradeStation, TOS policies.

Thank you!

Yes they increased the margins on these events - by quite a lot.

They used 1/2 the CME official margin for RTH (close at 15:00 - not later). The CME used a volatility formula (I believe) and after big swings it is much higher.

 

[Overnight]

Yes they increased the margins on these events - by quite a lot.

They used 1/2 the CME official margin for RTH (close at 15:00 - not later). The CME used a volatility formula (I believe) and after big swings it is much higher.

That reminds me. Last week I asked CME risk management about this very thing because of this thread, but forgot to post response.

As they said, (paraphrasing)..."We do not implement margin requirement changes until 24 hours after we have sent the announcement that the changes are going into effect."

So if your broker implements the changes without giving you the same grace period as the CME gives their clearing members, and your broker changes them intraday on you with no forewarning, while you have open positions, you might wish to take pause and re-think your choice of broker.

 

[SailorG]

Thank you! CME will give 24hrs notice. That's helpful info. Has anyone had a broker raise ES margin without 24hrs warning? I'm particularly interested in IB, TradeStation and TOS.

 

[beefcaketrade]

That reminds me. Last week I asked CME risk management about this very thing because of this thread, but forgot to post response.

As they said, (paraphrasing)..."We do not implement margin requirement changes until 24 hours after we have sent the announcement that the changes are going into effect."

So if your broker implements the changes without giving you the same grace period as the CME gives their clearing members, and your broker changes them intraday on you with no forewarning, while you have open positions, you might wish to take pause and re-think your choice of broker.

Didn't brokers pull margin lending on many stocks during the dot com bubble at the height of sudden surge in volatility? Suddenly stocks were all 100% margin requirement overnight?

Shouldn't sudden changes to margin be part of the risk assessment one should undertake and try to manage in case it happens? A 'black swan tail risk' of sorts for your portfolio? Because it is out of your control. Your broker, whichever one they may be, calls the shots no matter how much one complains.

Along the likes of liquidity risk of positions, broker counter party risk, etc. Maybe "sudden change to margining" should be something one should consider?

 

[beefcaketrade]

Funny, I know CTAs that trade up to 4 per $100k but when traders trade for their own account some use 25% of Span which is around 4 per $5k.

Is this 4 per 100K for intraday trading only or is this for overnight longer term swing positions?

 

[Robert Morse]

They use 1 to 4 contracts for intraday trading. Not surprisingly, I have done this with two CTAs, so far, they have both been unsuccessful.

 

[SailorG]

Didn't brokers pull margin lending on many stocks during the dot com bubble at the height of sudden surge in volatility? Suddenly stocks were all 100% margin requirement overnight?

Shouldn't sudden changes to margin be part of the risk assessment one should undertake and try to manage in case it happens? A 'black swan tail risk' of sorts for your portfolio? Because it is out of your control. Your broker, whichever one they may be, calls the shots no matter how much one complains.

Along the likes of liquidity risk of positions, broker counter party risk, etc. Maybe "sudden change to margining" should be something one should consider?

Hi beefcaketrade,

Yes, that is at the heart of my question. Although as it relates to ES specifically as opposed to stocks. But that's really here nor there. The heart of the question is how big of a 'black swan tail risk' is a margin increase and given that and other tail risks (flash crashes prob being the worst) what is a reasonable/comfortable amount of leverage for the longer term swing trader?

 

[beefcaketrade]

They use 1 to 4 contracts for intraday trading. Not surprisingly, I have done this with two CTAs, so far, they have both been unsuccessful.

So 4 contracts per 100K is still too much risk or appropriate?

 

[beefcaketrade]

Hi beefcaketrade,

Yes, that is at the heart of my question. Although as it relates to ES specifically as opposed to stocks. But that's really here nor there. The heart of the question is how big of a 'black swan tail risk' is a margin increase and given that and other tail risks (flash crashes prob being the worst) what is a reasonable/comfortable amount of leverage for the longer term swing trader?

They have circuit breakers now and they cancel/adjust trades to defend against flash crashes. So it becomes kinda complex. But yeah, is it so hard to believe you can have a minimum 100 point swing in a day on the S&P? Obviously not.

I guess the truly safest way, since the ES is 50X multiple, so at current prices around $115K notional value. The truly safest way is to hold 1 contract per the notional value in cash that you have. So 1 contract per $115K NAV. If you have $230K NAV you can hold 2 es positions, etc. Because then, it's just like a cash position. I mean, the maximum that they can ever 'surge' the margin of an ES contract with 50X multiplier, is to the notional value of the contract. It is impossible, or I should say, totally devoid of logic, to raise the margin requirement higher than the notional value of the contract. That's my guess as a worst case. But I guess that only applies if you are long, as you can only go to zero. If you are short, I guess there's no limit to 'how high' they 'can' raise it overnight.