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Let me try to help here. I think things have gotten complicated, but the situation is simper than it seems.
First, the CME exchange only sets margin requirements for trades that are kept open from one trading "day" to the next. Note that a trading day on ES and MES ends at 16:00 US Central Time (17:00 Eastern Time). The new "day" opens at 17:00 Central time (18:00 Eastern), after a one-hour break. If you open a trade before the exchange's closing time and you don't close it by the exchange day's end, you are holding "overnight" (not actual night, but between the end of one exchange "day" and the start of the next), and you will need to meet exchange margin requirements only then.
Otherwise, if you open and close entirely in one exchange "day," your broker can require any margin they like, and exchange margin is not involved. Margin is totally unregulated for intraday trades.
If you only trade intraday, you will never need to meet initial margin or maintenance margin, which are exchange requirements. So take those off the table for this discussion.
The rest of this discussion will seem very weird if you are used to what margin means in the stock market. In futures, if you close a trade with a 1 dollar profit, your account is immediately credited 1 dollar, which you can withdraw if you want it. If you close a trade with a 1 dollar loss, your account is immediately debited for a dollar. Futures margin is simply an amount that you have to have in your account to cover any potential losses. It's essentially a security deposit against loss. The exchange sometimes adjusts its margin levels for changes in market volatility (for exchange-set margins) and brokers sometimes do the same for intra-day margins. It is a requirement to make sure you have enough in your account to cover a likely loss.
Next, you have to know the dollar valuation of 1 point in the contract, which is not the same as the change in the index, but is assigned by the exchange. CME assigns a dollar value of US $5 to one MES point. It assigns $50 to one ES point. So in your example, let's say that "Bob." buys 1 MES contract. What is his required margin, and why? (Only talking about broker-set intraday margin.) Let's take a typical low-margin broker like AMP as an example. AMP requires you to have, I believe, $40 margin per contract in MES. (A very low and risky amount, but let's go with it.) So "Bob" has to have at least $40 in his account to buy (or sell) one MES contract.
So now let's say MES goes down 1 point. Remember that one point of MES is worth 5 bucks, based purely on the value assigned by the CME, so "Bob" is now down $5. If he closes the trade right now, he is debited $5 in cash, plus fees and commissions. Now suppose MES goes down a total of 8 points from his purchase. He's now down $40 (8 points at $5 per point) and he's tapped out. The broker will generally have a rule that you must close the trade before then, and will usually just close the trade for you. But you are done after you've lost your 40 bucks.
You can see that this is not how you made your calculations, because futures works differently. But this is how it is actually done. Using the same broker, AMP, I believe they require margin for ES of $400, which is proportional (1 point in ES is worth $50 in a trade.)
Futures trading is very different from stock or other trading, in that you are not actually buying or selling an asset. You are entering into a contract to buy or sell an asset at a certain date (most contracts are closed out well before that date), and you simply are putting up a deposit to make sure you are good for your losses. There are good but more complicated reasons for this, but the simple way to put it is that this is how it's done.
I hope this has helped a bit.
Bob. (Not the "Bob" of the example.)
------------------------
Edit: after typing this I read some of the other responses, and I think you can get a good picture from putting all these together.
Also, do not try to trade using only the minimum margins. You can keep more in your account, and you should do so. Margins of $40/contract in MES can be extremely risky if you are not very good, and even if you are.
When one door closes, another opens.
-- Cervantes, Don Quixote
You don't "pay" anything to enter into a buy contract in MES. No money leaves your account, because nothing is bought. You just have to have sufficient margin to enter the contract, and to take the debits to your account if price goes against you. If price doesn't go against you, no funds leave your account at all.
I realize that the change in outlook is difficult, but if you start with the fact that you are entering a contract and you are putting up an earnest money deposit, not buying anything, it will work out better.
These are just different concepts of trading, and of margin, than is used in stock or other trading.
If this is still not all clear, please point out the parts that are not.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
It sounds like you are saying 4/5 websites disagree with my comment. Please let me know what I may have incorrectly stated. If I misspoke, I definitely want to fix it!
Thanks for the clear explanation, bob. So it seems like my understanding from the previous posts here is correct, each contract "costs" $40 to buy, and intraday maintenance margin is just $0, but there are no margin calls, just liquidations? That essentially means every order has an in-built stop-loss of 8 points (even if you buy many contracts?). Yeah, that's an insanely small cushion. I'm not gonna go with amp then since it seems I cannot change the intraday margin that they mandate.
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Maybe you missunderstand what Matthew says. The contract doesn't cost $ 40.-- or $ 1,000.-- or whatever the intraday margin is, it only says how much money has to be on your account, nothing else. I said you can trade 10 contracts theoretical, but this doesn't make sense. So if your account-balance is 10times the daily-margin for each contract you want to trade, you will be safe.
Well, in a way there is a stop, because if you only had $40 and you lost 8 points you have lost $40 and blown up your account. Losing your account is not the best stop loss.
Things still may not be clear here.
Let's say you have $4,000 in your account. Let's say that you "buy" one MES contract. You can do this because you have more than $40 in your account. Now suppose the trade goes bad and goes down 8 points. OK, you're down $40. But still in the trade unless you close it. New suppose MES still goes down, another 8 points down. Now you have lost another $40 unless you closed it, so you're down $80. This can go on until you have lost the entire $4,000. There is no separate margin reserved just for that one trade -- your margin is everything you have in your account. So that's not a good "stop-loss."
As to AMP, they do not "mandate" a $40 intraday margin. You could have much more in the account (and should). Their required margin is just a minimum amount. Feel free to use several times that.
When you talk about intraday maintenance margin of 0 I think you still have not grasped the mechanics.
So again:
1. Say you start with $4,000.
2. You go long one contract -- meaning, you enter a contract to buy.
3. You "pay" absolutely nothing. You had to have at least $40 in your account, but that amount is not taken from your account. You didn't really buy any amount of the S&P index, you just now are in a contract to do so.
4. If the MES goes down, then money goes out of your account (when you close), and if it goes up, then money goes up (when you close.) Nothing went out of your account when you entered the contract (I'm saying it this way, "entered the contract," instead of the more natural "bought MES," to emphasize the fact that no funds are paid out to go either long or short. You just have to pay to cover price going against you.)
5. If the trade goes against you, that diminishes your available balance, and if it goes too far it will wipe you out.
This is all about intraday margin. If you want to hold past the day's close, you will need initial margin as required by the exchange, and maintenance margin going forward. These are not applicable to pure day trades.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Correct. You never "pay the $40" it is simply a deposit amount the broker insists you have. (The value can change, and a lot of brokers for instance increased their margin requirements during the Covid crash with the increase in daily range and volatility in the markets.
No, again it is a deposit.
Nothing that has been said is incorrect that I can see in any of the replies in this thread.
I suggest you forget what you understand about margin based on any previous trading experience you have in other products, such as stocks, and re-read all the posts as they do explain it reasonably clearly for futures, especially when described multiple times by different people. Or wait for the reply from IB.
Edit: I was typing this at the same time as Bob I see and I basically said the same as he did, but after him
You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
