Bonds risks and margin

Discussion in 'Fixed Income' started by salamanderforex, Sep 17, 2020.

  1. Thanks for the good suggestion.

    If this ^^^ is true then the whole bonds thing is out of question if it can't be used as collateral for margin. Are you sure?

    Why do you say "immaterial"? as in, the income from bonds is very little compared to earnings from high risk trading? (because that won't make sense to me as it's still some income regardless and unrelated to trading strategy).
     
    #21     Oct 15, 2020
  2. Sig

    Sig

    I agree. As an FYI, I'm trading mostly index options and a little bit of FOPs.
     
    #22     Oct 15, 2020
    bone likes this.
  3. bone

    bone

    I can only speak for a futures account - but yes, no FCM is going to let you trade futures effectively using the firm’s own funds for your personal account risk margin on an intraday basis. No bueno. Even when I carried T-Bills in my futures account I also carried at least 25% of the equity balance in cash at the FCM’s insistence.

     
    #23     Oct 15, 2020
  4. Thanks for the FYI.

    FOP = Free of Payment transfer method? If yes, how is that trading? Some arbitrage between brokers?
     
    #24     Oct 15, 2020
  5. Sig

    Sig

    Sorry, options on futures. Different risk profile to the broker than what you're probably talking about, which is more along the lines of what @bone is saying. He knows far more than me in that area so I'd go with what he says.
     
    #25     Oct 15, 2020
  6. Thanks.

    @bone is making concise points; I see that. I have to learn a lot more about bonds. For example I don't even know if bonds are FCM. I am assuming they are given the name.
     
    #26     Oct 15, 2020
  7. bone

    bone

    FCM = Futures Commission Merchant.

    An FCM in the United States is regulated by the Commodity Exchange Act and a slew of regulations by the CFTC, the NFA, and the trading exchanges themselves. And as you might guess there are plenty of regulations about customer intra day risk margins and liquidity.

    Commercial customers (usually hedgers) are under certain conditions allowed to extend property and securities as collateral. So - think Valero Refining or Rio Tinto Mining.

     
    Last edited: Oct 15, 2020
    #27     Oct 15, 2020