I want to start trading larger positions (5-10 contracts) of the emini but I have one nagging question. If a catastrophe occurred and the market fell %50 in a day do I as atrader have any liability beyond what is in my account. My broker is IB and does not have margin calls but automatically liquidates positons. THANKS
Oh yeah - you're liable. No different than if you went way on margin on equities. A loss is a loss, someone's got to cover it. The broker's not going to want to eat it for you. Although it's unlikely for the S&P to fall 500 points in a day, but it's nevertheless a risk (however remote). The initial overnight margin on the S&P e-minis is enough to cover about an 80 point drop (maintenance margin covers about 60 points). Daytrading margin is half that so it covers a 30 point intraday drop. For the NQ it equates to about 200 points initial overnight margin, 165 points maintenance margin, or 80 points intraday. They might put open contract limits on you depending on your overall financial status. If you're nervous about it, you could consider holding option hedges against what you're carrying overnight to set a maximum loss level in a catastrophe - it's a kind of catastrophic insurance policy, but like insurance it'll cost you something.
Why don't you just review those agreement forms again? After all, that's what matters, not what we think. Here's link: http://www.interactivebrokers.com/html/retailAccount/sampleForms/margin_risk.html
Like Archangel mentioned, you are liable for all your losses in the markets, even if they are greater than your account balance. Let's look at this from a historical perspective. Since the price limits were introduced we haven't had an instance where a motivated seller (assuming you didn't own thousands of contracts) could not get out even if we opened limit down. Trading continued in-between limit levels so if you wanted out and sold, you could get out. If we relived October 1987 again with the current limit schedule, as a motivated seller you could get out in between limit levels, though your loss could possibly wipe your account out and leave you with an account deficit depending on how quickly you exited. The lesson we all learn at one point or other in our trading career is that yes, we could lose it all and then some. This makes us focus on our money management to see where we are weak and where we can protect ourselves. I would never suggest anyone use options to protect themselves as it just seems like a waste of money if you are monitoring your positions and are a daytrader. I also would not suggest trading index futures if you are unable to monitor the market intraday or if you have no money management plan for getting out of trouble.
Thanks for the replies guys. As remote as the scenario is at leastyou confirmed that I need to be aware of the risks involved. Good idea Archangel. If this situation "bugs" me I will get an insurance policy( buy an option).
Trade as recklessly as you want because 1929 cannot ever happen again. Back then you had 10% margins as opposed to now when only prop shops, index futures, and SSF's allow 10x leverage. Can't imagine that there are any non"pro's" right out of collage trading minis. Back then there was no FDIC which of course has the resources to bail out Morgan if their 20 TRILLION $ derivatives portfolio ever goes awry. We have an SEC that will keep those short sellers at bay with the uptick rule, unless those un patriotic bears choose to leverage 50x in futures on a downtick. We we have a more defined Fed that can open the spigots bringing back a full recovery like the 0.25 discount rate has done in Japan. And lastly stocks are the best investment because they always go up. Now where can I buy some S&P's on 1k margin.
Do you actually believe any of what you just posted? I was going to rebut point by point but frankly the post above contains more disinformation word for word than anything I've recently read.
Easypack's and Tririder's responses to Pabst are exactly the reason I love to read this board and laugh at some of the stupidity that goes on. Guys - the Pabst entry was a f^cking joke you morons!