When leverage goes bad

S

shortorlong

So, let's say margin for 1 ES contract is $3500..

This means I buy about $65 000 of S&P contracts for only $3500..

So, thats about 20:1 leverage.


Assuming I buy 1 contract, what happens when S&P tanks?

1) The broker (mirus or openecry most likely) will close my position when the liquidating value of my account is less than $3500?

2) The broker will allow me to keep my contract, and if the market tanks intra-day, I could end up owing $ 60 000?

Is there any scenario where I end up owing more than the value of my account?



Seperately, I hear if I have limit stop orders, if the market 'jumps' my order, then my stop isn't hit and I'm in trouble. If I have a market stop order or a 'market when touched' order, am I guaranteed to be able to sell my contracts at my stop price? I'm guess not.. if noone at all is buying (catastrophe) then I am stuck with my position.. Does this mean I could end up owing someone $60 000?


Finally, does anyone using mirus or another ninjatrader + zenfire broker know that their broker does market stops or market when touched stops?

Thanks
 
This is why I personally only like trading options or instruments that are optionable.

If you were trading a stock and used a put option as a stop loss then it protects you from all of that as well as offering ways to make more money on the backend in a volatile climate.
 
I am pretty sure IB offers MIT orders (not fully sure, check out for yourself) and they are compatible with Ninja Trader.
 
Most brokers, incl OEC, will close your position out long before you have negative equity. Check with any potential broker and ask what their policy and if you can set your own restrictions that are higher than the firm's if you want to.
 
Quote from shortorlong:



Finally, does anyone using mirus or another ninjatrader + zenfire broker know that their broker does market stops or market when touched stops?

Thanks
More...

Every platform should have a regular Market Order function. Market If Touched (MIT) orders however are not native to every platform and last time I asked Ninja they did NOT offer MIT orders.

Open ECry does offer MIT orders.
 
I guess what is the difference between Market Order and Market if touched? I understand that a Market Order will execute right away, whereas a market if touched will execute when price moves through your target.

With a market stop order, there is a target associated, so is it the same as a market if touched? Can someone describe a 'with-numbers' scenario that shows the difference?


Anyone else with insights on what happens when leveraged mini futures contracts go bad?
 
Broker would notify you when you get close to losing your margin. Then, would TRY to liquidate your position before it went into negative equity.

If you get into a debit balance with the broker, you are required to pay it immediately. The obligation is "full recourse".
 
Quote from shortorlong:



1) The broker (mirus or openecry most likely) will close my position when the liquidating value of my account is less than $3500?

2) The broker will allow me to keep my contract, and if the market tanks intra-day, I could end up owing $ 60 000?

Is there any scenario where I end up owing more than the value of my account?


Thanks
More...

1. No. There is another margin category called maintenance margin. Some brokers will automatically close your position once your equity level falls below maintenance margin. I personally would never open an account with a broker who does this.

2. I guess in theory. In reality - nope. Not unless you were long and no buyers until zero or short and not a seller until price doubled.

3. Yes, you can lose more than your initial margin trading futures. It would take a fairly extreme move but it could happen. Using your ES example with $3500 initial margin, any adverse move >70 points would wipe out more than the initial margin
 
Don't hold during the maintenance period and you don't have much to worry about. Even on 911, dow opened down 600 points when it reopened so ES was probably around 60 -65. I always use market stop orders on ES. All it takes is one trade through epsecially during a fed announcement or economic number and you will get blown by with out the stop triggering. Worst slippage I have ever had was .5 using a market stop, but most fill on the exact stop with rare cases of .25 slippage.
 
Quote from bathrobe:

I am pretty sure IB offers MIT orders (not fully sure, check out for yourself) and they are compatible with Ninja Trader.
More...

IB has MIT orders.


John
 
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