What If ES drops -100 points,

HeSaidSheSaid

HeSaidSheSaid

What if I have $5000 in my account, and I buy 2 ES futures contracts, then ES has flash cash like -100 points drop, and no rebound after that.
Does it mean there'd be a margin call for $10,000 on my account? [=2*100*$50=$10,000]. Thanks

even I'm able to wire in $10,000 dollars, though the account balance still shows zero (let's assume market doesn't bounce), then I'd be required to make another additional $5000 deposit to bring the account back up to meet the broker deposit requirement? am I correct?
Thanks
 
You will lose all your money and more with such approach to trading. First, you are way over leveraged with 2 contracts on 5000 dollar deposit. (you should never start trading with 5k only to begin with, it's called undercapitalization). Then when you lose money in your account and especially more than you deposited you should consider it game over (game because you pretty much approach this business like a gambler) and NOT look how to wire in more funds. Makes zero sense unless you have money to throw away. Why don't you donate the money for a good cause? You will be way more satisfied with the results.

HeSaidSheSaid said:
What if I have $5000 in my account, and I buy 2 ES futures contracts, then ES has flash cash like -100 points drop, and no rebound after that.
Does it mean there'd be a margin call for $10,000 on my account? [=2*100*$50=$10,000]. Thanks

even I'm able to wire in $10,000 dollars, though the account balance still shows zero (let's assume market doesn't bounce), then I'd be required to make another additional $5000 deposit to bring the account back up to meet the broker deposit requirement? am I correct?
Thanks
More...
 
Let's keep this simple. If you open the account in your name, you are responsible for all losses and the FCM can go after you. If you have an LLC, they can only go after your LLC. Most of the firms that take accounts as small as $10,000 will not provide you a margin call as the position goes against you, they will liquidate you.

Does that help?
 
1- That's not a flash crash...
2- It did happen on Friday... (from 2119 to 1999) So actually a good question!
3- Margin on 1 ES future is 4200 USD... plus some more broker specific (Interactive Brokers the initial margin is 125% of maintenance margin, = 5250. So you can't trade 2 futures)

But in the end, as conduit and 1245 mention, you will lose all... also, the broker will probably trade out of this position on your behalf... So no position in the end and any losses owed you are liable for...

There's a thread somewhere online, whether this forum or another, about a guy who leveraged long on a stock and got wiped out, broker sold all position, and he was owing something like 150k... I think he wanted others to chip in through GoFundMe... hilarious....
 
I don't imagine you will lose all your money.

First of all, during the overnight session, you wouldn't even be able to hold 2 contracts as the margin will be too high. You can start with 2 contracts during the RTH, but after the close, I imagine one contract would be automatically sold to maintain the minimum margin for overnight. IB has the initial for overnight at 5,250, and for overnight, I don't think anyone else can give you less, its only during the regular hours that you see some of these firms offering much lower margins.

But the critical part of the answer is that the maintenance margin for overnight is $4200, so once you drop below that, I imagine your contracts will be automatically sold.

Now its possible that you are holding one contract, market shuts down for an hour for the maintenance and the gap is huge, in which case when they auto liquidate and it gaps by 100 points, that could be a loss off $5000, but this is an extreme scenario.

So if you go into overnight holding one contract, with an account of 10k, when it reopens and price has dropped 100 points, you will have a paper loss of $5000, but you will still have $5000 of net liquidity, and hence not be below the $4200. Only if it continues to drop and you lose another $800 would it go into auto liquidate. For 2 contracts, I can't imagine that they would let you go into the overnight session holding both knowing that your won't have the margin to hold 2 contracts overnight.

But this is all speculation as I have never been in this situation.
 
He only has 5k in account... so it's a wipe-out...
Anyway, I assume it's all hypothetical....

I think you have some time to come up with a solution, but that only works if you have something else to sell to post the required margin with the sale proceeds. Stocks for instance..

In this case you have nothing to sell, you're short cash, which means fully liquidated at best and any negative cash balance is treated as a loan which you have to repay asap...
 
Do some of the brokers have automated liquidation if possible?

I think when margins return to normal, $5,000 should be max a beginner should have in account and trade ones for long time till account is $15k, keep $10k in reserve checking account back home. It far better not to use real time account till your well back tested and sim trade 18 of 20 profitable day, cause if you have developed a system that can be profitable and still can't be profitable, you have mental issues that have to be worked out before losing ton of cash. Have seen a score of newbies wipe out $10k accounts plus as they didn't spend the time to be able to learn to read charts, or learn how far is too far, or how about WHEN NOT TO TAKE A SIGNAL, just cause you have a signal-does not mean all signals are equal, like buying into cluster of highs or continually buying even though market is making lower lows.

Oh, and you can count on one day when price will make few limit down moves in a row, and no one will be able to get out. So those who think $300 margins are a good deal, when you have to declare bankruptcy, won't be chirping.
 
Handle123 said:
Do some of the brokers have automated liquidation if possible?
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I don't think any broker will be happy once you reach negative cash balance/negative net liq.... They might be more lenient if you have other assets to sell, but I would say they jump on closing it out, so they can limit any losses to them if the client can't pay up in the end...
 
Not sure how other brokers handle this, but you'd be sold out at IB.

One contract, 5K in the account and down 100 points equals 5K. With a futures contract they are marked to market continuously and the cash reflects the movement. At 100 down, the cash and value would be zero. I'm not sure what the margin is for a single ES contract at IB, but auto liquidation would occur at 80% of that number on the way down.

Other brokers may approach this differently.
 
HeSaidSheSaid said:
What if I have $5000 in my account, and I buy 2 ES futures contracts, then ES has flash cash like -100 points drop, and no rebound after that.
Does it mean there'd be a margin call for $10,000 on my account? [=2*100*$50=$10,000]. Thanks

even I'm able to wire in $10,000 dollars, though the account balance still shows zero (let's assume market doesn't bounce), then I'd be required to make another additional $5000 deposit to bring the account back up to meet the broker deposit requirement? am I correct?
Thanks
More...

Forget it, don't even think about it, or you will end up one sorry bastard!

That is like the idiots who think they can make a load of money trading FX with $500 account..wtf..are most people really that stupid!

To make money, you need to have money that you can afford to lose, and I don't mean "borrowed" money, as that is not YOURS!

If you want to play tiddly wink games, then open an SB account, if you can, if not get a relative in Europe to open one for you - as they will close your losses for you very quick, and you won't have to worry about margin - but remember gaps can still make you liable (i doubt they will take the chance though), and you have to pay what you owe someone!

You must know you are trying to compete with those who have access to billions of $ - so unless you are very good at reading charts, and have at least $20k that you don't mind losing - forget it, you are on a road to nowhere, no matter what anyone tells you otherwise!

J_S
 
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