Futures margin?
- Thread starter webbma
- Start date
thank you...so answer is for intraday it is negotiable with clearing broker. the $4500 is overnight.
Jimmy...thanks for the advice. I have been trading these for awhile but at a bigger bank but for hedging purposes for overall positions. margin never an issue. thinking of doing this on my own now and want to understand the margin req's.
Jimmy...thanks for the advice. I have been trading these for awhile but at a bigger bank but for hedging purposes for overall positions. margin never an issue. thinking of doing this on my own now and want to understand the margin req's.
To further beat a dead horse I'd like to make sure my line of thinking is correct here. As someone who just begun some simulators on ThinkorSwim to start trading Futures in the near future I want to ensure that the transition from stocks to Futures is proper. It seems that the largest area of confusion around this is that with a stock you are buying the position spot and you (assuming no margin) must have the cash to pay for it up front. If you use margin for a stock you simply are just borrowing the difference. Your gain or loss is then determined by the resale value spot which is the difference between the cost and value. Very elementary but I wanted to spell it out before continuing.
With futures, provided my understanding is correct, you 'freeze' the margin requirement ($4500) for the time that you hold the contract. Your gain or loss is then determined by the number of ticks that occur before you close out the position. If you close with 2 ticks you get $100 (gross of commissions, assuming $50/tick) and your $4500 is 'unfrozen' plus your account is $100 heavier. If the position goes against you the portion 'unfrozen' is the margin ($4500) less the $100 (2 ticks).
Trade is complete and you are all in cash again.
Am I correct?
With futures, provided my understanding is correct, you 'freeze' the margin requirement ($4500) for the time that you hold the contract. Your gain or loss is then determined by the number of ticks that occur before you close out the position. If you close with 2 ticks you get $100 (gross of commissions, assuming $50/tick) and your $4500 is 'unfrozen' plus your account is $100 heavier. If the position goes against you the portion 'unfrozen' is the margin ($4500) less the $100 (2 ticks).
Trade is complete and you are all in cash again.
Am I correct?
I'd say you've got the concept right. With one addition... Initial margin is the requirement at the moment the opening futures position is filled. Once filled, it is the MAINTENANCE MARGIN that, in your words, becomes frozen. Also understand, handling of drawdown situations BELOW MAINTENANCE MARGIN is dependant on your broker.
Osorico
That's basically correct. "Margin" is a misnomer with regard to futures. It is actually a performance bond, meant to protect the broker from your position going bad. Stock margin represents a loan, entails an interest charge, and is disallowed for tax-advantaged accounts such as IRAs. Futures margin continues earning interest, and does not represent debt-leverage.
Ah yes, I meant points, thanks for pointing that out. I don't know why you thought I was talking about commissions of $25 or $50, I was talking about on a losing trade you would have that amount deducted (the loss). My assumptions were all absent of commissions.
So thinkorswim.com's rate of $3.50 per side isn't that bad compared to the $4 or $8 eh?
Quote from osorico:
I'd say you've got the concept right. With one addition... Initial margin is the requirement at the moment the opening futures position is filled. Once filled, it is the MAINTENANCE MARGIN that, in your words, becomes frozen. Also understand, handling of drawdown situations BELOW MAINTENANCE MARGIN is dependant on your broker.
Osorico
Ok, I didn't even want to discuss maintenance margin since I intend to have my stop loss FAR above $900/contract! It is extremely important though so I have a follow up question. Let's say my account value is $4500 exactly for illustrative purposes.
I purchase one contract. I now have $900 'unfrozen' for trading? Let's assume a mixed account where I can buy stocks so that $900 would be able to be used. If I spend that $900 and the value of that stock falls below $900 will I receive a maintenance call? (in general)
I think when I finally begin trading I will just book the whole $4500 as tied up until I exit the trade. I don't intend to hold on very long any way and maximizing every penny in my account does not interest me so I don't think I'll run the risk of trading away the amount needed to satisfy the maintenance margin.
I appreciate your (collective) input and hope not to be such a newbie soon!
Quote from JimmyJammer:
OK, I wasn't sure with the questions being asked.
If margin isn't an issue you can play very lose, to the degree that it is an issue, you have to be much more aware of it play a much tighter game.
***
You're one extreme in the marketplace (use ES futures to hedge a basket of stocks). Osorico is another (super scalper of the YM contract).
Figureing out where you want to fit in those two extremes will determine the amount of margin you use to trade with (I love talking with someone who makes me feel conservative).
Jimmy Jam
I am conservative. i'm seriously considering doing this on my own as opposed to at a bigger bank, that is getting out there on the risk curve for me!!!!
Yes. The difference between Initial and Maintenance margin is "not encumbered", meaning it can be used. And yes, depending on the broker, you could receive a margin call given your example.
One thing to keep in mind regarding futures, is that the accounting of open positions, technically, occurs at the end of after hours trading. That's what the short hiatus between after-hours and overnite trading is! Your specific broker may have different rules.
Quote from JimmyJammer:
Give this guy an A+.
He's giving you the exact information in a step-by-step fashion here. I'm glossing over the easy parts.
I use a brokerage with very low commison requirements per ES/YM/NQ contract ($500), so when I say need $2,000 per car, that gives me a lot of leeway, and I don't have to sweat the small stuff when trading.
But he's pretty much given you the detail you need to look at to determine how you are going to manage your risk and manage your money ... two sides of trading that don't get a lot of attention, but they are actually what will make you or break you.
Good trading,
JJ
Cheers, I need to start referring to contracts as cars, it has a nice ring to it. My current system has a very robust risk control which consequently was too conservative for this choppy market and a swing trader could not get a break. Suffice to say that's a conversation for another thread but I am glad to hear that the larger issues I have a significant foundation in already!