What happens when a margin call occurs during vacation with other collateral in account?

K

killATwill

In the situation where a futures position moves against you, resulting in a margin call while you are on vacation and unreachable, and where there is other collateral in the account (such as equities, options on futures, etc.), what happens?

I imagine one of these three scenarios?

A) The brokerage firm liquidates the other collateral in the account to meet the margin requirement, keeping the losing futures position open.

B) The brokerage firm liquidates the other collateral in the account to raise funds, and closes the losing futures position. The funds raised cover the margin call, but the brokerage firm wants to reduce account risk.

C) The brokerage firm liquidates the losing futures position to exit the trade, leaving the other collateral in the account untouched. The firm subsequently request additional cash from the trader to restore the required margin level.
 
you think too much, the broker will close out your losing trade to meet the overnight margin. the right question is that if you have multiple instruments, es and nq, both below the water, which one the broker will liquidate?
 
mervyn said:
you think too much, the broker will close out your losing trade to meet the overnight margin. the right question is that if you have multiple instruments, es and nq, both below the water, which one the broker will liquidate?
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Thanks for your reply. I'm actually curious about the scenario in the example I posted, specifically, not multiple instruments. In the example, I'm assuming the entire futures position needs to be liquidated.
 
killATwill said:
Thanks for your reply. I'm actually curious about the scenario in the example I posted, specifically, not multiple instruments. In the example, I'm assuming the entire futures position needs to be liquidated.
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no, just enough to cover the overnight margin.
 
mervyn said:
no, just enough to cover the overnight margin.
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Let me rephrase my question, so that it's based on your assertion that closing the position is in fact the first move of the brokerage firm.

In the hypothetical scenario where:
  1. You have a one lot futures position that gets closed by the brokerage firm while you are on vacation.
  2. After closing the futures position, there is still a cash deficit in your account.
  3. You have other non-futures collateral (e.g. equities, options) of value in the account.
...does the brokerage firm liquidate the remaining non-futures collateral positions to cover the cash deficit, or will they keep the non-futures positions intact and try to contact you, demanding that you deposit additional cash to resolve the deficit?
 
the broker will close enough futures lots to a point where your overnight margin is met. no, they won’t touch non futures positions.

futures margin doesn’t work the same as equities margins.
 
mervyn said:
the broker will close enough futures lots to a point where your overnight margin is met. no, they won’t touch non futures positions.

futures margin doesn’t work the same as equities margins.
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Yes, I know they'll close the position.

But let's assume there is a cash deficit when the position is closes: The trader didn't use a stop, and the brokerage firm's risk team was lazy. Now there's a cash loss of $ -2000 USD in the account.

Let's also say the "options" collateral are "options on futures" (so they are technically a related product), whose total position value equals $10,000.

Will the brokerage firm attempt to liquidate $2000 worth of the options on futures position to meet the cash requirement, if the trader is on vacation and unreachable?
 
killATwill said:
Yes, I know they'll close the position.

But let's assume there is a cash deficit when the position is closes: The trader didn't use a stop, and the brokerage firm's risk team was lazy. Now there's a cash loss of $ -2000 USD in the account.

Let's also say the "options" collateral are "options on futures" (so they are technically a related product), whose total position value equals $10,000.

Will the brokerage firm attempt to liquidate $2000 worth of the options on futures position to meet the cash requirement, if the trader is on vacation and unreachable?
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there is no cash deficit, it will be zero positions, and some changes remaining. the exchange will force liquidate the position at 20% of your nlv. you can keep the 20% cash at worst.
 
mervyn said:
there is no cash deficit, it will be zero positions, and some changes remaining. the exchange will force liquidate the position at 20% of your nlv. you can keep the 20% cash at worst.
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So you're saying that the exchange has built-in mechanisms to automatically liquidate positions and prevent a cash deficit? I've encountered some less diligent brokerages that seem to not follow this practice, leaving their clients vulnerable to holding positions with resulting cash losses.

In those cases, if there is in fact a cash deficit after the firm closes the position (assuming the brokerage is sloppy), would they then liquidate the options on futures position to generate cash to cover the shortfall?
 
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