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Initial/Maintenance margin


Newbie just learning.
Whats the difference between inital/maintenance margin? If I say have an account with $10k cash and I want to buy 1 ER2 contract at say 700 today then do I even have to worry about margin requirements since Im not borrowing to buy 1 contract? thx for helping iwih dumb question.

msc
msc: quick answer, with most brokers and 10k in your account and trading 1 ER2 contract then no, you don't have to worry about margin requirements because you have plenty. The ER2 trades at $100 per point so you have 100 points of loss in 1 trade open to you ($10,000 / $100 = 100 points).

The initial margin is an amount that is usually large enough to cover an adverse movement in the near term. For day trading (closing the position at end of trading) the initial margin is less because the risk is less. If you carry a position overnight then the margin requirements are usually higher.

Maintenance margin is the amount of margin that is taken aside to "top-up" the initial margin if the position moves against you. This is usually calculated on the closing price of the day.

Say your initial margin is $3,000. This basically covers your 1 contract ER2 position against an adverse move of 30 points. If, at the close, your position is down 10 points and you carry the position overnight then there is only $2,000 of your initial margin left to cover any adverse overnight move. So a maintenance margin of $1,000 is applied to your account so that your position has at least $3,000 of "cover" against an adverse overnight move.

Let me know if this helps.
Thanks for the explanation.
Pretty much explains it all.
As an equities trader for years trying to diversify and make my life a little simpler with watching couple of futs like es er2. Been with Tradestation for years. Ok but always searching for better.
So If I understand it right buying one contract of er2 would be the price of the contract say 700 plus the inital margin of 3375. Wont hold overnight so wont have to worry about other margin requirements. If you buy more than 1 contract(which I WONT for awhile) do the margin reguirements double? ie initial would be 7650?

Thx for the help.

msc
The initial margin will be whatever your broker has set - you do not need to add the price of the ER2 to the equation. If your broker has set an initial margin of $3,375 per contract then that is the amount that is set aside against any position that you run.

So if you have a $10,000 account and open a position then $3,375 of that account is earmarked as unusable because it is the margin being used for your position and will remain unusable until you close your position.

You are correct that each contract will require the same initial margin so 2 contracts will require $6,750.

The easiest way to get your head around futures is think of the asset that you are controlling. In this case we are dealing with the ER2 which is worth $100 per point. If the ER2 is trading at 700 then you are controlling $70,000 of asset with 1 contract. If you buy the ER2 and it moves up by 10% to 770 then your asset has appreciated to $77,000 and you have made a profit of $7,000. You managed to make this profit by "putting aside" a margin of $3,375. So your return on what you put aside is more than 200%. If you compare your return to your account size then it's 70%.

Of course this works in the other way as well and you can reduce your account by 70% if the market moves against you and you hold onto your position.
Another quickie:
You need initial for day 1, maintenance for day 2
quote:
Originally posted by proedge_joe

Another quickie:
You need initial for day 1, maintenance for day 2



Am I correct in saying that maintenance is applied to your account during the overnight balance of your account and so is deducted from available funds before trading on day 2?
Good question.

Who do you trade with?
Some in a TS chatroom saying buying 1 er2 per 10k in account is way too risky.
I cant figure out why there saying that.
I guess if your buying multiple contracts per 10k then yes then thats too risky?
i disagree. the relationship between the number of contracts that you trade per $10k in your account is a linear relationship and not an exponential one.

if you trade 1 er2 per $10k then why not 10 er2 per $100k?

it makes no sense to trade for e.g. 8 er2 per $100k if you are trading 1 er2 per $10k.