I am thinking of trading Futures, more specifically the ES - Mini S&P 500 and I have a question. The Initial Margin for this contract is $5625. Now suppose I have $7000 in my account I buy one contract at 1100. Overnight something terrible happens and the S&P 500 opens at 800 and never goes about 800 the whole day. So I have lost 300 points at $50 each = $15,000. So what is my liability? Is it just the margin of $5625? Or the actual amount of $15,000? I assume that my position would be immeadately liquidated at the open, correct? If I am liable for the full $15,000 and my account only has $7,000, what happens to the rest of the $8,000? If had some other stocks worth say another $2000, could they sell those too? Can they sue me for the rest???
You can lose your whole account in a margin call. Depends on how long your broker waits to liquidate your positions after your margin has been exceeded. Legally, they can do it as soon as a margin call is triggered. Practically, they can wait until your account is in the red. I know of three traders who are making monthly payments to brokers from four years ago. They failed to use stop losses, and their brokers chose to ride them as far into the red as they were above it when they entered the trade. All of them now use stops in their sim accounts. They haven't got the funds for cash trading again, yet. Lesson learned.
The technical answer is yes; you can lose more than initial margin. With no limit. In practice however, the answer lies with your particular broker/clearing firm and the client account risk management that is allowed, applied, or imposed. To expand on your scenario, if the market opened or gapped significantly against you, you are on the hook. No matter how much trust you have with your broker/clearing firm to act in your best interest, and no matter what type or level of client account risk management is used, they do not control trade prints and the outcome that may be triggered by such prints.
What's that saying about:" fools and their money"? Sim accounts: Obviously they haven't learned enough yet.
in this scenario youn could lose $30,000..serious stuff...treat it seriously...only in futures is this possible...not Forex
I know you don't want to hear this, but the truth is you don't have a large enough account size to swing trade ES overnight. You'd be subjecting yourself to far too much risk. Two other ideas for trading the S&P with your account size: 1) Trade 60 sh. of SPY. That way in your scenario, you'd lose 25% of the account. That hurts, but you can recover. 2) Daytrade 1 contract only and never hold overnight. Always using stops.
I have been there losing more then I had in my futures account, so becareful. I can tell you its not fun, neither is spending years trying to rebuild. Albeit I did not do it no mini's but I did it on naked short options. So please use stops and the other poster was right dont hold overnight if you only have that much. I know it might be tough but its not worth the hurt if it happens to be some kind of event! Day trade for now, build up confidence then grow the account and go for it, you will be all the better! Good luck sir
As a commodities broker I have seen another broker's customer lose over $250,000 with a $25,000 account. Needless to say there was much nashing of teeth.