Is margin variable according to price, and why? | Traders Hideout - futures trading strategies, market news, trading charts and platforms

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Is margin variable according to price, and why?

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Houston, TX
Trading Experience: Intermediate
Platform: NinjaTrader 7
Favorite Futures: NQ
Posts: 91 since Apr 2016
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SMCJB View Post
I built a cash flow/futures margin at risk model once for a NYMEX Energy Futures book, probably ten years ago now. Initially I just started with a VaR model but the big errors in the model predictions were all days when the margin level changed. As such I had to also build a model that predicted margin changes. I don't remember the exact details any longer, but the best predictor I could find of a margin requirements was the X day ATR. So at least back then, margin requirements were most heavily influenced by volatility.

Yeah, I agree with this. My understanding is that margin depends on notional value and volatility.

Higher price does not necessarily mean higher margin requirement. A large, sudden drop is price would likely cause a broker to increase margin for that product. But price very slowly going higher could translate to lower margin requirements for a product (see the ES recently for an example of this).

Actually, now that I'm thinking of it, Andreas Clenow mentions in Following the Trend that some traders use their broker's current margin requirements for their volatility calculations instead of using ATR.

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