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Is margin variable according to price, and why?
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Is margin variable according to price, and why?

  #1 (permalink)
Market Wizard
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Is margin variable according to price, and why?


GFIs1 View Post
As we see price nearing last ATH in the DAX - a new might be at the
front door soon.

For sure the 127xx level is history for next days.

132xx - we are coming

Means again HIGHER margins on the futures - oops!

GFIs1

This post by GFIs1 caught my attention.

Although I noticed that margins did not appear set in stone, I did not know that they can vary according to price.

If I read the post correctly, margin increases with the price rising, and viceversa.


Question 1: why?

Question 2: does it apply to all futures instruments (presumably so)?

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xplorer View Post

Question 1: why?

Question 2: does it apply to all futures instruments (presumably so)?

When you think about it it is normal. It's like making a loan to your bank to buy a house. The higher the price of the house, the higher the cash down will it require.

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Market Wizard
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trendisyourfriend View Post
When you think about it it is normal. It's like making a loan to your bank to buy a house. The higher the price of the house, the higher the cash down will it require.

Okay, so far I have approached margin from the point of view of a speculator, thinking about the futures product in terms of tick increment worth, liquidity and volatility.

Whereas I think you are saying that I should think about the intrinsic value of the asset, right?

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xplorer View Post
Okay, so far I have approached margin from the point of view of a speculator, thinking about the futures product in terms of tick increment worth, liquidity and volatility.

Whereas I think you are saying that I should think about the intrinsic value of the asset, right?

Nope, not intrinsic value (whoever knows that ), only nominal value, i.e. point x index.

Staying with @trendisyourfriend 's example: Nominal value is the price of your house, of which you are making
a fractional down payment (your margin) in order to cover the risks (liquidity, volatility, rate changes, etc.).


Last edited by choke35; June 17th, 2017 at 03:30 PM.
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xplorer View Post
This post by GFIs1 caught my attention.

Although I noticed that margins did not appear set in stone, I did not know that they can vary according to price.

If I read the post correctly, margin increases with the price rising, and viceversa.
Question 1: why?

Question 2: does it apply to all futures instruments (presumably so)?

Yes!!!

Hi @xplorer
Margin is directly connected with the price level of a future.
Of course every broker is free to adapt own levels...

Now concerning the DAX - An example
Watch here my first trade in my Dax journal on February 21st 2012:
https://futures.io/trading-journals/17862-gfis1-1-dax-trade-per-day-journal-2.html#post193659
Dax was on a level of 6909 - a margin with IB of 7200 €

now one more - the LAST trade of my journal on June 15th 2017:
https://futures.io/trading-journals/17862-gfis1-1-dax-trade-per-day-journal-305.html#post644764
Dax was on a level of 12754 - a margin with IB of 14850 €

So - the DAX made quite some up and the margins were doubled...
All that can not being seen equally with derivatives.

With one Dax future contract you move € 250000. That is the leverage when you touch

Have a look at margins with Interactive Brokers live here:
https://www.interactivebrokers.com/en/index.php?f=marginnew&p=fut

Get some insight into reading the table

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


We have a Initial Margin - this is what you need for the FIRST contract...
then we have Intraday Margin - that means the margin for 2nd to x contracts
And beware of OVERNIGHT Margin - that means what you need to pay 15min. before future closing time
when holding overnight until normal futures market reopens again on following day.

If you are not having enough capital on your account - then all your hang over margin contracts are sold
immediately to the price near closing automatically.

Hope this helps
GFIs1


Last edited by GFIs1; June 18th, 2017 at 07:22 AM.
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GFIs1 View Post
Hope this helps
GFIs1

Yes it does! Thanks for your comprehensive post


For some reason I can't credit your post with the answer

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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.

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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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Seth
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I think the key thing to keep in mind is that the margin requirements are not necessarily set in stone or increased automatically. The broker or exchange can decide to increase or decrease the margin required on an instrument whenever they want.

This is what leads to things like that big run in Silver we had a few years ago. As the price went higher, the margins didn't increase. One contract was increasingly worth more and more increasing the leverage you had, and making it more attractive to trade. However, the exchange decided to increase the margins, and that meant some traders had to liquidate their position resulting in an ugly selloff.

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