Futures Contract Risk Exposure

[5yrtrader]

In your example, the S&P is $50 per point and is trading at 1000... the contract is worth $50,000... so that is your total risk. If you buy 2 contracts at 1000 in your $20,000 account, your total risk is $100,000 so you are leveraged 5 to 1.

5yr

Edit:

If the initial margin is $4000, and the maintenance is $2000, the you need at least $8000 in your account to buy 2 contracts. Once you have the 2 contracts you need to maintain at least $4000 in your account otherwise you will get a margin call. Once you get a margin call you will need to meet the initial margin requirements again, you will have to deposit more money or close your position.

 

[carltonp]

This is brilliant gentlemen,

I'm loving the feedback. Just trying to digest it all - and trust me I am reading and re-reading your comments.

 

[carltonp]

Guys,

I'm getting more good advice here than when I called my brokers - IB.

 

[carltonp]

Quote from RichardRimes:

I can't say it enough....UNDERSTAND...all of the components of your chosen instrument then with your $20K pick the ES, YM, or NQ to start with. Trade one contract until you have been thru some solid ups and downs. good luck!

I'm going to take that on board mate...

The example scared the crap outta me .....

 

[carltonp]

Gents

Still reading your comments...

However, would you say the best way to safe guard yourself (other than not trading at all) from potential catastrophe's as the one Richard described?

At the moment, whenever I enter a trade always enter with a pre-defined stop-loss. However, with Richards example, a strategy to use while trading E-minis is not to hold over night.

Would you agree?

 

[carltonp]

Quote from brownsfan019:

Brokers software now will liquidate you at/near/close to your account value. They will not let it go into default.

So if you have $20k, your max risk is basically the $20k under normal conditions. In theory, you are on the hook for whatever the loss is but since the futures trade round the clock, you should get out around your $20k level before it turns into more.

But in all the paperwork you sign, you are saying you are on the hook for whatever the loss may be.

Brownsfan019

Are you sure about this?

 

[carltonp]

Sorry about my grammar in the last post...

 

[rmorse]

Quote from carltonp:

OK,

I've read many threads on this Forum and I've seen newbies get ripped to shreds for asking basic questions.

So before any of you that are kind enough to respond, please bear in mind that I'm very new to Futures.

With that said, BIG APPL, I'm assuming that I've opened an account with the initial margin required to trade, in this case $4000, and I have $20K in my account.

Blobmorse, I fully appreciate that I'm responsible for the loss that goes against me. I'm also familiar with the actual point sizes. I was just using hypothetical numbers to make the calculations simple

I'm interested to know if I could lose the full $50K in the example?

Cheers

Yes, that would be your loss. You can continue to loose money until the index reaches zero, or at expiration, when the future expires and your position turns into current cash value. If you lose more than what is in the account, the entity that owns the account will be responsible for all losses.

Does that help?

 

[carltonp]

Quote from carltonp:

Gents

Still reading your comments...

However, would you say the best way to safe guard yourself (other than not trading at all) from potential catastrophe's as the one Richard described?

At the moment, whenever I enter a trade always enter with a pre-defined stop-loss. However, with Richards example, a strategy to use while trading E-minis is not to hold over night.

Would you agree?

Gents,

I meant to say 'What are the strategies that you guys use in order to safe guard yourself against potential catastrophe's and the one Richard described?'

 

[brownsfan019]

Quote from carltonp:

Brownsfan019

Are you sure about this?

About which part?

In the majority of the time, the broker's software will liquidate you at/near your account value in a worst case situation.

As I said, in theory you could be on the hook for more but w/ advances in software that is not likely.

You'll note that this is usual or standard conditions. If you put a swing trade on and buy the top on a Fri afternoon and come Sun open terrorists have destroyed the White House, Pentagon and Cleveland Browns Stadium, then you might be in trouble.