Hi. I'm very interested in getting into commodity spreads in order to provide some diversification to my equities trading. I've read several books on the subject, and one common theme in all of them is that spreads have MUCH smaller margin requirements compared to outright futures positions. However, when I contacted a rep from my broker's (Thinkorswim by TD Ameritrade, and yes, I know they're a sponsor here) customer service department, he had this to say -- in this case, by the way, I was asking particularly about a potential Crude Oil spread, which is why I'm putting this post in the Energy Futures forum, even though this really applies to all spreads: "Futures spreads are used by buying and selling two separate contracts of the same commodity (in this case /CL) in order to capitalize on a discrepancy in prices. You can profit from the change in price differences but these can change quickly. Regardless, if you wish to place 2 orders for /CL you need to meet the margin requirements which is currently $12,000 initial per contract. If either of your trades should go against you, you may need to meet a margin call as well." Have things just changed dramatically over the past few years (the books I read are all at least 5 years old now)? Is Thinkorswim just a "bad" broker for futures spreads? Does it sound to you like the rep just doesn't understand what spreads are? Obviously, I'm a bit confused in light of all I had read about spreads. Any thoughts on this would be appreciated -- thanks!
Margins are set by the exchange and then by your broker. TOS/TD is a retail broker, they're not known for their futures side, and accordingly probably have higher margins/commissions. Initial margin on IB to trade the Z11/Z12 spread is $1750 and maintenance $1300. Find a new broker.
Based upon today's settlement, the initial performance bond margin for a 1:1 Crude Oil Calendar Spread is $405 http://www.cmegroup.com/clearing/margins/intras.html#e=NYM&a=CRUDE+OIL&p=NY-CL Change your fucking broker. Retail brokers do not have a clue regarding correct margining for futures spreads. Your broker sucks cock.
IB, TOS, Velocity, etc. etc. They do not have a clue. Every client I take on who clears them - switches. You need a more serious institutional strength broker who will take a $25K account: MF, Advantage, Crossland, RJ O'Brien, RCG, CTS, etc.
Well, there are some interesting (and fairly harsh) comments here. In a way I'm sorry to hear it, but in another way, I'm glad that spread trades, in terms of margin requirements, are in fact as advertised by the books I've read. As for TOS, I've always been very happy with them on the equities side, so this is kind of surprising.
that I know of TOS doesn't do futures spreads unless they mean legging into stuff which is not the way to go...IB does futures spreads but poorly in my opinion you really just need a futures broker such as those mentioned above.
I my past experience you should find a spread broker who will watch your back and pay him/her around $20/RT. You can shop around but nobody is going to work for you free. If the guy is good the $20 commission is nothing. If he sucks the amount you pay for commission is not the point - you will lose BIG!
I haven't used a spread broker since the late 90's, and none of my 70 clients use a spread broker. It is an electronic age, with very good electronic execution platforms, and that is a fantastic development. Please refer to the exchange-supported implied spread. Welcome to the 21st century !
Are you referring a spread broker on the exchange floor OR a broker on the phone? I am no expert like you.... I was taking about a guy working on the phone your orders (mainly electronically, but sometimes on the phone while connected to clerks on the floor)... ... I always thought legging in and legging out is not always that trivial and not 100-percent can be done electronically, I think. I admit I have not done this for a while but 100-electronic is not there in terms of the quotes at the exchanges. You will still execute some on the floor by a floor broker (if I am not mistaken mostly the grain stuff at the CBOT) and electronic order entry can be erroneous.
http://www.cmegroup.com/globex/files/FuturesSpreadsonCMEGlobex.pdf See page 4. This capability has increased since the release of this white paper in 2008. http://www.cmegroup.com/education/interactive/webinars-archived/implied-price-functionality.html The simple fact of the matter is that most of the grain spreads can be traded as an implied, and the balance can be legged over the screen either manually or using autospreading software. Again, your perspective is... well, a bit dated.