Ok, I was hoping it wouldn't have to come to this, but I have to ask a really basic question. I've looked everywhere for the answer and I'm assuming at this point that its so basic that its a given in any futures tutorial...Lucky for me I've had several beers after work and could really care less about the verbal abuse and ostracism that I may likely provoke. My question is basically how are margins used in futures trading?I have a lot more experience with stocks and I understand 2/1 margin and what not. In futures and forex, margin is expressed as a dollar amount rather than a fraction, ie, $500 on ES contracts, $600 for YM. Can someone break this down in the simplest of terms for me. For example if I have a $5k account and $500 margin on a certain contract...what does this mean...what is my bp.....how many contracts can I buy? When is there a margin call??? Thanks a ton.
margin is your down payment, just like buying house, put down 20% and you get the house no question ask, same here, put down $500 and you can trade 1 contract, $1K for 2 etc... be aware that $500 is day margin, if you hold contract overnight it suddenly jump to $2K per contract but it will go back to $500 when market open. $5K = 10 contracts during the day, if you hold 10 overnight, they want $2K x 10 and suddenly you got margin call or your loss excess your cash on hand then you also get margin call.
thanks nkhoi, so can a position every be liquidated by the broker after a point is reached....say I have 5 grand i buy 2 contracts of ES @ 500$ margin.....do I just continue to lose after i lose the initial 1000? or lets say I dont have enough in my account to cover the overnight margin and i dont close my position at the end of the day...what happens?
remember you are using a down payment not a full face value of contract to trade, so of course you can and will lose more than your down payment, $1K for 2 contracts in this case, and continue to lose until your $5K is consumed and then they will cover your contract and tell you to come up with rest and then they might increase your margin so you can only trade 1 contract with $2K
The way I understand it, is that every time ES drops a point your contract goes down $50. So if the position goes against you for 10 points and you liquidate it, your account is $500 lighter. Consequently, next time you place an order, you can only do it with 4500 that is left, therefore you could only purchase 9 contracts which would be $4500. Imagine if you have a 10 contract position and it goes 10 points away. Your account would be wiped by such a drop. So BE careful. Do not let the easy margin make your trading into gambling.
I plan to trade very small (1 or 2 contracts) for a while until Im comfortable. Since I'm new to futures my main goal is capital preservation so I can stay in it and learn for as long as I can. Thank you guys for your help.
We all have the same plan. execution of it however, is entirely different matter. Self discipline is where it is at. master it and you will master the market .... often times enough to be ahead at the end of the month. And one more thing.... there are NO stupid questions.