Margin requirements in this scenario

Discussion in 'Index Futures' started by logic_man, Feb 23, 2011.

  1. If you are holding an open long ES trade of 1 contract and you then want to short 1 ES contract at a later point in time, and hold overnight (leave aside for the moment the question of why?), is your margin requirement $5625 for each of the contracts, so $11250, or is adding the second contract on the opposite side of the market (realizing it can't be the same expiration month) irrelevant from a margin perspective, so long as the number of contracts is the same and I would only need $5625 for the entire position?
  2. bone

    bone ET Sponsor

    Logic, when you (for example) buy 1 March11 ES contract, the initial performance margin will be $5,625. If you manage to sell 1 June 11 ES contract before the closing settlement, the initial performance bond for the combined position [ long 1 March ES and short 1 June ES ] is only $50. In other words, you can carry that position overnight for just $50.

    From CME:

    Revised 02/23/2011.
    Spread Calculation Example
    EQUITY INDEX -- IntraCommodityRates

    S&P 500 Stock Index - All Months-E-mini S&P 500 (Dollar)
    Spec $50 $40
    Hedge/Member $40 $40

    In another case, the following example means that you can carry this spread overnight for 10% of the margin requirement of the unhedged futures position.

    Revised 02/23/2011.
    EQUITY INDEX -- InterCommodityRates

    Dow Jones (CBOT) (11) vs. S&P 500 Stock Index (SP)
    Spread Credit Rate +3:-1 90% 90%

    Spec $13,000 $10,400
    Hedge/Member $10,400 $10,400

    Note: SPAN margin credits get assigned by the exchange for carried positions, and since FCMs are exchange members they have no choice in the matter - they have to comply.

    We work with FCMs that will extend these credits to intraday trading margin capitalization through modified risk settings to the trader's execution platform.
  3. Thanks for the response. You mention the closing settlement, so does that mean these rules wouldn't apply if the second position was opened during the overnight session (or if both positions were opened up overnight)?
  4. bone

    bone ET Sponsor

    Verify with your FCM - from my experience, the entire timeframe that you are un-hedged they will treat as unhedged directional risk.