In your example, the S&P is $50 per point and is trading at 1000... the contract is worth $50,000... so that is your total risk. If you buy 2 contracts at 1000 in your $20,000 account, your total risk is $100,000 so you are leveraged 5 to 1. 5yr Edit: If the initial margin is $4000, and the maintenance is $2000, the you need at least $8000 in your account to buy 2 contracts. Once you have the 2 contracts you need to maintain at least $4000 in your account otherwise you will get a margin call. Once you get a margin call you will need to meet the initial margin requirements again, you will have to deposit more money or close your position.
This is brilliant gentlemen, I'm loving the feedback. Just trying to digest it all - and trust me I am reading and re-reading your comments.
Gents Still reading your comments... However, would you say the best way to safe guard yourself (other than not trading at all) from potential catastrophe's as the one Richard described? At the moment, whenever I enter a trade always enter with a pre-defined stop-loss. However, with Richards example, a strategy to use while trading E-minis is not to hold over night. Would you agree?
Yes, that would be your loss. You can continue to loose money until the index reaches zero, or at expiration, when the future expires and your position turns into current cash value. If you lose more than what is in the account, the entity that owns the account will be responsible for all losses. Does that help?
Gents, I meant to say 'What are the strategies that you guys use in order to safe guard yourself against potential catastrophe's and the one Richard described?'
About which part? In the majority of the time, the broker's software will liquidate you at/near your account value in a worst case situation. As I said, in theory you could be on the hook for more but w/ advances in software that is not likely. You'll note that this is usual or standard conditions. If you put a swing trade on and buy the top on a Fri afternoon and come Sun open terrorists have destroyed the White House, Pentagon and Cleveland Browns Stadium, then you might be in trouble.