Question on Leverage/Margin

T

traderday321

I am aware that only a margin deposit is required to trade a particular futures contract (and not the full contract value).

Not clear whether the broker is basically "loaning" the remaining amount? For example, let's say if 1 contract of the micro emini /es requires a margin deposit of $600 and the notional value of the contract is 6000, is the remaining 5400 lent by the broker?

Thanks in advance.
 
Asked my colleague John Thorpe to provide his explanation:

There are No loans or rehypothecation of customer assets in futures trading accounts. Unlike securities and bank accounts. Margin deposits, or rather "Good Faith deposits" are small , usually 10% or less of the notional contract value. All brokers (FCM's) must settle with the exchange at the end of the trading session on behalf of their clients open positions. The Brokerage firm make's sure their client has the Good Faith deposit to hold the positions going into the next session. This is what is called the Initial margin requirement. This Initial requirement is all that the exchange requires from the public to have in their account when they initiate the trade and MUST maintain the maintenance margin requirement thereafter, usually 90% of the initial Margin requirement.
 
Also know there are:
  • Initial bond: required to open a trade.
  • Maintenance bond: required to keep a trade going,
  • Overnight bond: required to hold overnight when regular trading ends.
  • Initial Overnight: required to open a position outside regular trading hours.

If the account does not meet any of these, the position is not opened or if it is opened, it is closed out for lack of liquidity.

Furthermore, the amount changes frequently, and is also increased or decreased based on who you are using. I think last month IB hit about 18K for an ES contract.

Hope that helps.
 
Never had such a thing (Bonds?) when I was with IB years back and all the time I've been with TradeStation 20+ years.

Just initial and maintenance margin. Increased when volatility spikes. That's it.
 
SunTrader said:
Never had such a thing (Bonds?) when I was with IB years back and all the time I've been with TradeStation 20+ years.

Just initial and maintenance margin. Increased when volatility spikes. That's it.
More...

That's what they officially used to call it. A "performance bond". That's where that comes "bond" thing comes from...

marginCMEoopsbonds.JPG


Seems like they are finally doing away with that archaic terminology.

As far as this though...

marginCMEoops.JPG


Seems like even the CME in confused by all of this, and it is their own rule! If the initial margin is what is required to INITIATE a position, and the maintenance margin is what is required to MAINTAIN it, then how come if you account balance is below the maintenance requirement would you then have to bring account back to INITIAL margin? You are just trying to MAINTAIN the original position, not initiating a new one!

Maddening. This is always why when I swing, I calculate my position on the initial, and not on the maintenance, and certainly not on the day-trading discounts offered by the broker. Always leave yourself an out.
 
No confusion on CME's part. Their rules. Pay or don't play.

As for Bonds, I was being facetious. Nowhere and no one, other than in the minutia of exchange rules, refers to margin as bonds.

OTOH some traders keep bonds and/or notes {Treasuries} as collateral in their trading account.
 
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