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What's this confusion with margins?


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What's this confusion with margins?

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  #1 (permalink)
magicTurtle
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From the CME website we can see that:


Quoting 
Initial margin is the amount of funds required by CME Clearing to initiate a futures position. While CME Clearing sets the margin amount, your broker may be required to collect additional funds for deposit.

Maintenance margin is the minimum amount that must be maintained at any given time in your account.

However, certain brokers explain this in a different way, NinjaTrader says here the following:


Quoting 
Intraday Margin rates are effective from the product open until 15 minutes prior to the session close when Initial Margin is required. Initial Margins are set by the exchange and represent the amount required to hold a position into the next trading session

TradeProFutures also says here:


Quoting 
Initial Margin is set by the exchange. This is the amount required to carry a contract past the daily close.

DayTrade Margin is set by Trade Pro. This is the amount required to enter into a position per contract on an intraday basis.

And AMP, while they do agree with CME with the Maintenance Margin definition, they have no mention of the Initial Margin here

However, on NinjaTrader we can see that the initial margin for MNQ is US$1760, here.

So I wonder, how come NinjaTrader and other brokers like Optimus can open accounts with minimum funding as low as $400 or $500? Tradovate says they don't even have minimum funding!

Does this mean that after the first day I will get a margin call to get the account up to the initial margin of $1760? Even if I don't have any open position after 15:45?

Or would i get a margin call if my funding falls bellow the minimum $400/$500?

Thank you.

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  #2 (permalink)
 brach 
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The various types of margin apply when you have an open position.

During the regular trading day (as defined by your broker) the "day trading" (aka intraday) margin will apply. If you have an open position and your balance doesn't drop below the total day trading margin required before closing the positions you'll be fine.

However, outside of the "day trading" hours, the margin set by the exchange will apply. This us often much higher than the day trading hours. If you carry a position outside of the day trading hours, you'll have to meet the higher requirements.

Most day traders or scalpers will only have open positions during the day, so they'll never have to meet the higher requirements.

The brokers can set the intraday margins. Some brokers encourage day trading and will have much lower day trading margins. Others will give you a smaller break (say 50% off maintenance margin).

Separately, a broker may have a minimum account balance that would apply even if you don't have any positions open. Often the brokers that encourage day trading with very low day trading margins won't have a minimum account balance.

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  #3 (permalink)
magicTurtle
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brach View Post
The various types of margin apply when you have an open position.

During the regular trading day (as defined by your broker) the "day trading" (aka intraday) margin will apply. If you have an open position and your balance doesn't drop below the total day trading margin required before closing the positions you'll be fine.

However, outside of the "day trading" hours, the margin set by the exchange will apply. This us often much higher than the day trading hours. If you carry a position outside of the day trading hours, you'll have to meet the higher requirements.

Most day traders or scalpers will only have open positions during the day, so they'll never have to meet the higher requirements.

The brokers can set the intraday margins. Some brokers encourage day trading and will have much lower day trading margins. Others will give you a smaller break (say 50% off maintenance margin).

Separately, a broker may have a minimum account balance that would apply even if you don't have any positions open. Often the brokers that encourage day trading with very low day trading margins won't have a minimum account balance.

Thank you for the clarification, but why does CME says that the initial margin is the minimum required to "initiate" a position? Should it be just clarified to say "initiate a position outside of trading hours"?

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  #4 (permalink)
 brach 
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magicTurtle View Post
... why does CME says that the initial margin is the minimum required to "initiate" a position? Should it be just clarified to say "initiate a position outside of trading hours"?

Good question! There are some folks here who know the mechanics between the broker and exchange very well; maybe someone will explain. All I know is that the day trade margins apply if you confine your trading to those magical hours.

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 bobwest 
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magicTurtle View Post
From the CME website we can see that:



However, certain brokers explain this in a different way, NinjaTrader says here the following:



TradeProFutures also says here:



And AMP, while they do agree with CME with the Maintenance Margin definition, they have no mention of the Initial Margin here

However, on NinjaTrader we can see that the initial margin for MNQ is US$1760, here.

So I wonder, how come NinjaTrader and other brokers like Optimus can open accounts with minimum funding as low as $400 or $500? Tradovate says they don't even have minimum funding!

Does this mean that after the first day I will get a margin call to get the account up to the initial margin of $1760? Even if I don't have any open position after 15:45?

Or would i get a margin call if my funding falls bellow the minimum $400/$500?

Thank you.


magicTurtle View Post
Thank you for the clarification, but why does CME says that the initial margin is the minimum required to "initiate" a position? Should it be just clarified to say "initiate a position outside of trading hours"?

Positions opened and closed before the exchange-defined close of trading for the day are not subject to CME margin rules at all. Brokers can set margins wherever they like. Many set margins at around $500 or even $400 for contracts like the ES. What matters is when the exchange sets the close and open of the trading day.

Trading in ES is halted, for example, at 1600 (4:00 PM) Chicago time (US Central Time). ES opens for a "new" day, after 1700 (5:00 PM) Chicago time, Sunday through Thursday (it is open from Thursday at 5:00 PM and all day Friday but does not reopen Friday evening.) The "regular trading hours" are not part of the equation, by the way -- they are simply the old pit hours, when there were manual trading pits, before electronic trading that went on at night. (In fact, the ES pit hours also began at the same time as the NYSE hours in New York, and ended 15 minutes after the NY close. So these hours are still relevant to trading because they have the highest volume. But they are not how the CME defines a trading day today.)

This is odd-sounding in terms of the calendar, because Monday's trade date begins Sunday night at 17:00 CT, for instance, and each "day's" trading actually starts at 17:00 CT on the afternoon of the previous day, paying no attention to the usual change of date at midnight. But this is how they do it.

Positions held after the exchange-defined close are subject to CME margin rules. So, if your broker requires, say $500 margin for day trades, then you will need to either be out of your position before the close, or you will need to have margin sufficient to meet the CME requirements. Brokers will generally require you to do one or the other at times that are before the deadline, which is also up to them. If you are going to hold "overnight," (which is kind of funny terminology today with around-the clock hours), that is, if you open before the close and are still open past the close, you are in CME territory. Otherwise, you are in unregulated broker-land. If you are in CME territory, then your initial margin requirement to have the position is the exchange-determined initial margin; subsequently, you will need CME maintenance margin. If you are only day trading and get out when the broker requires, you never need any CME-mandated margin, just what the broker sets.

You can look up the CME hours at its website, and you can find the brokers' rules at theirs.

(Please note: brokers do not have your best interests in mind, and using such low margin for day trades can be suicidal for the trader. But brokers get more small traders to sign up that way. The supply of new day traders willing to take such risks is apparently inexhaustible, so brokers don't mind that many of these accounts will be blown up from not having enough cushion to take losses. There are more where they came from, basically.)

But this is how the margin situation works out. Not actually confusing when you unwind it.

Bob.

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 brach 
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bobwest View Post
The "regular trading hours" are not part of the equation, by the way -- they are simply the old pit hours, when there were manual trading pits, before electronic trading that went on at night.

Apologies. I didn't realize that "regular trading hours" was strictly defined with a universally accepted definition to mean "old pit hours." I've seen it used a bit more loosely so I didn't know.

I was trying to convey the idea of "day trading hours" as defined by a specific broker, which as far as I can tell, is not the same thing as "other than CME hours" because each broker seems to have a slightly different definition that doesn't align perfectly with the CME boundaries.

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magicTurtle
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bobwest View Post
Positions opened and closed before the exchange-defined close of trading for the day are not subject to CME margin rules at all. Brokers can set margins wherever they like. Many set margins at around $500 or even $400 for contracts like the ES. What matters is when the exchange sets the close and open of the trading day.

Trading in ES is halted, for example, at 1600 (4:00 PM) Chicago time (US Central Time). ES opens for a "new" day, after 1700 (5:00 PM) Chicago time, Sunday through Thursday (it is open from Thursday at 5:00 PM and all day Friday but does not reopen Friday evening.) The "regular trading hours" are not part of the equation, by the way -- they are simply the old pit hours, when there were manual trading pits, before electronic trading that went on at night. (In fact, the ES pit hours also began at the same time as the NYSE hours in New York, and ended 15 minutes after the NY close. So these hours are still relevant to trading because they have the highest volume. But they are not how the CME defines a trading day today.)

This is odd-sounding in terms of the calendar, because Monday's trade date begins Sunday night at 17:00 CT, for instance, and each "day's" trading actually starts at 17:00 CT on the afternoon of the previous day, paying no attention to the usual change of date at midnight. But this is how they do it.

Positions held after the exchange-defined close are subject to CME margin rules. So, if your broker requires, say $500 margin for day trades, then you will need to either be out of your position before the close, or you will need to have margin sufficient to meet the CME requirements. Brokers will generally require you to do one or the other at times that are before the deadline, which is also up to them. If you are going to hold "overnight," (which is kind of funny terminology today with around-the clock hours), that is, if you open before the close and are still open past the close, you are in CME territory. Otherwise, you are in unregulated broker-land. If you are in CME territory, then your initial margin requirement to have the position is the exchange-determined initial margin; subsequently, you will need CME maintenance margin. If you are only day trading and get out when the broker requires, you never need any CME-mandated margin, just what the broker sets.

You can look up the CME hours at its website, and you can find the brokers' rules at theirs.

(Please note: brokers do not have your best interests in mind, and using such low margin for day trades can be suicidal for the trader. But brokers get more small traders to sign up that way. The supply of new day traders willing to take such risks is apparently inexhaustible, so brokers don't mind that many of these accounts will be blown up from not having enough cushion to take losses. There are more where they came from, basically.)

But this is how the margin situation works out. Not actually confusing when you unwind it.

Bob.

That was magnificent, Thank you!

If you don't mind, I agree that just $500 for ES is suicidal (that's just 10 points!) but would it be suicidal for something like MYM or MNQ?

Thank you again

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 bobwest 
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brach View Post
Apologies. I didn't realize that "regular trading hours" was strictly defined with a universally accepted definition to mean "old pit hours." I've seen it used a bit more loosely so I didn't know.

I was trying to convey the idea of "day trading hours" as defined by a specific broker, which as far as I can tell, is not the same thing as "other than CME hours" because each broker seems to have a slightly different definition that doesn't align perfectly with the CME boundaries.

You're right about the brokers, since there's no actual requirement, other than that the trader has to be either out entirely, or to have CME margin, at the CME close. So they can have their different rules, which are up to them.

It is actually made more confusing than it needs to be because of the brokers' differences. So it's important to know what your broker is going to require.

Bob.

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 bobwest 
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magicTurtle View Post
That was magnificent, Thank you!

If you don't mind, I agree that just $500 for ES is suicidal (that's just 10 points!) but would it be suicidal for something like MYM or MNQ?

Thank you again

I think $500 can be much better for the micros, because it translates to the equivalent of $5,000 for the e-minis. In general, it would probably be a good idea to have more, especially if a trader is starting out and isn't sure what level of risk they can work with and be profitable.

But it is in a more realistic ballpark at least. The thing is, if you've not traded futures live (meaning, with actual money), you will have no idea in the world how you will react to the sudden changes in profit and loss with a highly leveraged position. The best idea is to do whatever you can to insulate yourself from these swings, including strong loss control and having sufficient margin.

It's going to be an individual thing -- but being undercapitalized is a dangerous thing. So be guided by that.

(Also, NQ/MNQ is a very fast-moving, quick-changing beast. Be guided by the inherent risk in the instrument you are trading also.)

Bob.

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 Blash 
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magicTurtle View Post
From the CME website we can see that:







However, certain brokers explain this in a different way, NinjaTrader says here the following:







TradeProFutures also says here:







And AMP, while they do agree with CME with the Maintenance Margin definition, they have no mention of the Initial Margin here



However, on NinjaTrader we can see that the initial margin for MNQ is US$1760, here.



So I wonder, how come NinjaTrader and other brokers like Optimus can open accounts with minimum funding as low as $400 or $500? Tradovate says they don't even have minimum funding!



Does this mean that after the first day I will get a margin call to get the account up to the initial margin of $1760? Even if I don't have any open position after 15:45?



Or would i get a margin call if my funding falls bellow the minimum $400/$500?



Thank you.



Nobody cares about your account, as far as a margin call, if you don't have a position on.

Brokers like you mentioned open accounts with such ridiculously small funding requirements to suck in folks with a wanting for knowledge of this business.

This business is about getting the probabilities in your favor. Getting an edge. The more the better.

Ron


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magicTurtle
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Blash View Post
Nobody cares about your account, as far as a margin call, if you don't have a position on.

Brokers like you mentioned open accounts with such ridiculously small funding requirements to suck in folks with a wanting for knowledge of this business.

This business is about getting the probabilities in your favor. Getting an edge. The more the better.

Ron


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I must have clarified that those low margins are for micros, but I do get your point. However I want to start tipping the toe with micros (MES, MNQ, MYM), and then move over the minis, if I survive

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I think @bobwest covered it well. I used to explain it to traders simply like this: If you want to hold a position thru the close (4:00 pm Chicago time) for that one hour until market reopens for next business day trading, then you will need the full margin. Otherwise you're flat going into the close, like most traders, and when market reopens you can then initiate a new position at the daytrade margins.

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bobwest View Post

(Please note: brokers do not have your best interests in mind, and using such low margin for day trades can be suicidal for the trader. But brokers get more small traders to sign up that way. The supply of new day traders willing to take such risks is apparently inexhaustible, so brokers don't mind that many of these accounts will be blown up from not having enough cushion to take losses. There are more where they came from, basically.)

But this is how the margin situation works out. Not actually confusing when you unwind it.

Bob.


Brokers do not treat customers as an "inexhaustible" inventory. To say we don't mind when customers blow up is a mischaracterization. Those blowing up their accounts are a loss to the industry and a personal loss to themselves. In other words, they did not give themselves a fair chance.

The demand for the low margin is coming from the customer side, not the other way around.
It's the demand that created competition for commissions and leverage. Beginners want max leverage, low commissions because they think the combination of both will lead them to success.
Even some customers that are sufficiently capitalized still ask how many they can carry. You present them with the fact that they don't need this leverage, and they always come back with "just in case."

I suggest that you ask some members of this forum whether the broker pushed the margins or whether a question they brought up during the interview process.

Also, please consider that the micro has opened an opportunity for smaller traders to trade in a reasonable size. Still, at the same time, not everyone has the risk capital to put full margins, even for micros. Lower margins for day trading allow them to operate within that risk capital.

There are zero benefits to any broker that lost his or her customers. I put an enormous amount of education into helping traders. Simultaneously, the low margins we offer are because we are still in a competitive marketplace, and we must comply with the demand of that market. We hope giving a lower margin would allow some to participate and learn. Still, we do not advocate that they overleverage and treat trading as gambling with the "all-in" approach.

Thank you,
Matt Z
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 bobwest 
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mattz View Post
The demand for the low margin is coming from the customer side, not the other way around.
It's the demand that created competition for commissions and leverage. Beginners want max leverage, low commissions because they think the combination of both will lead them to success.
...

Also, please consider that the micro has opened an opportunity for smaller traders to trade in a reasonable size. Still, at the same time, not everyone has the risk capital to put full margins, even for micros. Lower margins for day trading allow them to operate within that risk capital.

Matt, I'm sure you're right about where the desire for high leverage and low capitalization comes from. It's the gambler's dreams of infinite riches with no effort to get them. (A very human impulse, by the way, which everyone probably has at first.)

So, I accept the fact that brokers may not be pushing foolishly risky behavior on their customers, and that the demand is there on the customer side.

Still, the first time I opened a futures account, I remember that the broker told me, "Yes, you only need $500 to open the account." A direct quote, shich I still remember. Not your firm, but not unheard-of in the industry, either.

I was not and am not trying to bash brokers, or not all brokers at least, and my point in the post you quoted was not anti-broker so much as anti new people making foolish and uninformed decisions about risk, so I could have phrased it better. My point was, do not make this mistake -- be careful and be realistic about the risk you undertake, that's all. Still, brokers who cater to this demand for high risk are part of the equation as well. For every buyer, there's a seller.

But what I mean to suggest to new traders is that they be realistic about their chances of striking it rich, and to go slow.

I agree that the micros are great tools for a new trader to operate with reasonable risk levels and learn how to trade with much less chance of losing their account, which is a painful way to learn the lesson. Although sometimes it's the way that it's learned, unfortunately.

My point in a subsequent post:


bobwest View Post
I think $500 can be much better for the micros, because it translates to the equivalent of $5,000 for the e-minis. In general, it would probably be a good idea to have more, especially if a trader is starting out and isn't sure what level of risk they can work with and be profitable.

But it is in a more realistic ballpark at least.

Micros are a good way to get into real trading with more sustainable risk, although you can lose there, too. Ultimately, the trader is responsible for his/her risk. They just need to be aware of it, and to be careful as they start out, which is my actual point.

Bob.

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