Futures Questions from a newbie!

Discussion in 'Commodity Futures' started by Crude Man, Nov 11, 2010.

  1. pardon my naivete:

    If I have $25K and I'm trading 18 crude oil contracts at a time on intraday margin, what would I owe my broker on interest for using that margin?

    I have read the warnings from the pros here about maxing intraday margins, but, there is a possibility of a profit to be made, correct? The dollar amount in the profit or losses would be similar. If I made $360 profit on a 0.02 cent move then I could also lose $360 on a 0.02 move against me correct, or could the losses be more?

    Also, do sizes like 18 contracts draw market makers to trigger your trail stops, anybody experienced this? I read a thread here where someone said its real but wasn't sure if this dude was being paranoid.

    Thank you Elite Trader nation. I hope to learn, and trade for a long time.
  2. drm7


    There are no interest charges, since the broker is not lending you the money. The "margin" is techincally a performance bond, which could be thought of as a deposit with the exchange to cover a day's losses. If the position goes against you, you need to add to your "deposit", or the broker liquidates your position.

    To answer your second question about profits and losses, they would TECHNICALLY be the same. However, you need to consider the $0.01 to $0.02 bid-ask spread and potential slippage (i.e. the difference between the price where your order executes and actually gets filled.) So, in reality, your $0.02 profit/loss as you see it on a chart is really $0.00 profit/$0.04 loss (before commissions, which approximate $0.005).

    The old NYMEX floor traders used to do some shady stuff, but CL is almost all electronic now. Stops get hunted if they are placed at obvious positions (i.e. 1 tick above major resistance, 1 tick below yesterday's low, etc.). I don't think your 18 lot stop would attract any attention.

    Personally, I think trading 18 lots at a time on a $25k account is suicidal. Look at a 1 minute chart during regular hours. Bars average about 7-10 ticks between the high and low. Even a scalper needs to build in a 10 tick stop to account for this noise. A 10-tick loss on 18 contracts is $1,800, before slippage and commissions. A few bad trades in a row, and your account will have a big hole in it. Based on 10 ticks of risk and 1% loss per trade, you shouldn't be trading more than 2-3 lots.

    I speak from personal experience. I started with a $50k sim account and decided to be "super CL scalper" on the 1 minute chart with 10-lot orders. I was down $18,000 by lunchtime, despite never losing more than $1,000 on any one trade. I am regrouping and building strategies off of 5 min bars, with fewer smaller longer trades.
  3. bone

    bone ET Sponsor

    Go to the CME Nymex website portal and look up the initial performance bond margin requirements for CL.

    And then revise your sizing scenario down sharply.
  4. mickmak


    18 contracts with 25k is suicidal, especially you are doing that in a single trade. I have used a 25k account but traded conservative with 1 contract/trade. Profits are there due to the volatility in CL, but you have to know when to get out since your account size doesn't give you alot of room for error.

    Speaking from my own experience, with 25k you should probably be maxed out at 5 contracts. This gives you enough room if you entered a bad trade. Remember, it wasn't too long ago where CL moved $3-5 during the day. Can you withstand that with 18 contracts and be able to trade again next day?
  5. I`m not sure if your naivety can be pardoned :)

    Easy come, easy go, remember that.

    The thing is that you will have drawdown, no matter how good you are. Hell, it is even likely that you someday will be in the middle of a market crash. Your account could be wiped out very quickly.

    If you want to learn and trade for a long time, back down to one contract and learn to trade. Earn your right to increase your size.

    When you are profitable, consider allocating a certain amount of capital per contract, say $5000. Then increase/decrease your number of contracts by one per every $5000 change in your account. That way you can grow your daily profits while maintaining low risk and be able to survive drawdown.

    There are some excellent traders in the CL redux thread, so I would recommend you to stop by there.

    PS: If you`re just interested in gambling and are comfortable losing it all, you can continue as you do now ;)

    Best regards,

    Laissez Faire

  6. Mick, Laissez. Word to the wise. Thank you.

    What about trading like this guy?