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I think this question about margin has been answered well enough, and beaten to death.
But do you understand that losses are charged against your account, and that "is it kind of an ephemeral concept and just sort of stays in your account" is not how it goes? No, nothing is ephemeral here. You actually lose your losses.
As to what happens and when, the broker is not going to let you run a loss beyond your margin for long. The point of requiring margin is for you to have put up some money to back your trades. As a trade loses, the loss is an "unrealized loss" until the trade is closed, but it is reducing the free funds you have available for trading. When the trade is closed, the unrealized loss becomes realized, that is, taken, by your account being charged. I agree with the others that this continual asking about margin calls is puzzling. Don't go below your margin, close out before then. If you don't, you are subject to the broker closing your trade. Your losses are not ephemeral, they come out of your account.
Will you get an actual margin "call" -- a reminder to please put in more money? I wouldn't bet on it. If you don't take the loss on a losing trade, the broker does, and they are not fond of that.
The thing to do is to have more in your account than the required margin, and to close the trade if your loss gets too large. Close it early is a good rule. And unless you want to be watching it every moment, have a stop loss order in place to kill it if you need to. If we're talking about initial and maintenance margin, those are terms that apply to trades that fall within the CME rules for overnight trades. The replies here have been about pure day trades only.
As to margin for overnight trades, AMP and every other broker has to follow the CME rules once a trade is no longer purely a day trade.
I think that if you read over this thread you will find that your questions have been responded to sufficiently by at least someone, probably many people, actually. If it isn't clear yet, I don't know how to make it more so.
I just read your last post, but will not reply in detail. The concepts are still all the same: margin is the money you have in the account to back the trade. If you choose to trade with only the minimum margin in your account, you don't have enough to be safe. Many traders will always have several times the minimum margin in their account, unless they are serious risk-takers.
One last thing is that I don't understand why you keep asking questions in terms of percentages. in your example, if MES went from 4000 at your initial long to 3975, it has lost 25 points (you said 20, a typo I'm sure). Since 1 point on MES is worth $5 a point per contract, you have a dollar loss of 25 points x $5 per point x 2 contracts = $250, plus commissions and fees. If your account can stand this loss and still be above the required margin, fine. If not, then not fine. You may have to add to the account and you may find you have no choice and you have had the trade closed and the loss is already taken.
If you have a stop loss order in place it will take you out when hit, and you will see the loss in your balance from the closing of the trade.
If the explanations of how things work in this thread have not been sufficient, I suggest more research.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
@bobwest One last thing is that I don't understand why you keep asking questions in terms of percentages. in your example, if MES went from 4000 at your initial long to 3975, it has lost 25 points (you said 20, a typo I'm sure). Since 1 point on MES is worth $5 a point per contract, you have a dollar loss of 25 points x $5 per point x 2 contracts = $250, plus commissions and fees. If your account can stand this loss and still be above the required margin, fine. If not, then not fine. You may have to add to the account and you may find you have no choice and you have had the trade closed and the loss is already taken.
If you have a stop loss order in place it will take you out when hit, and you will see the loss in your balance from the closing of the trade.
It was not a typo. 20points moving against you is usually what it takes to drop down to the maintanence margin level. Currently I think mes initial margin is about $1200 and and the maintenance is at $1100, a difference of about 10%. Approximately 20 points of cushion. Not sure how I could have explained this any clearer. I also read that maintenance margin is consistently usually about 10% below initial, which is why thinking about the percent matters to some degree.
Also note that now I'm referring to the domain of overnight trades only, not intraday anymore since that seems to have somewhat different mechanics in terms of maintenance and margin call.
In the specific example, 25 points moved against bob, which already passed through the margin call level (being 20). I simply want know if you have a stop loss slightly below the margin call level (5pts below), can the position close in time before you pay variation margin to "refill" the margin back to initial. If you have to pay this, to me it's even worse than a loss, I'd rather just stop loss then find a different entry afterwards.
Your response didn't make it clear whether or not the variation margin will be auto-deducted via the system (you said "not to bet on that"), or if it has to be instigated by the broker manually in this example.
If you don't take the loss on a losing trade, the broker does, and they are not fond of that. Not sure what to make of your statement here. The drawdown could be temporary, and furthermore by paying the margin call, you've de-risked things for the broker a bit, so wouldn't they be incentivized to give you margin calls? If the trade then ends up winning, the broker still keeps that money from the margin call (which happened from a temporary drawdown) ? If this is what happens then you've paid extra costs without gaining any more contracts under your open position, irrespective of win or loss. Hence why I feel it's important to know the exact mechanics here
You're right that I missed the shift in topic to overnight trading. Sorry. I only day trade, and am always out well before the session closes, so I have little knowledge and no experience of trading on longer timeframes, hence my discussion has been on intraday only.
I'm afraid I'm not a resource for other timeframes, and I can't be of much help there.
I'll just say that I'm still not sure that I understand how you are thinking about margin. When you talk about a margin call, you write as if the margin is a cost that is paid to the broker. Margin is just money in your account that has to stay there to secure your trade. It doesn't go anywhere and it isn't paid to anyone. If you have to deposit more margin, the amount you send just goes into your account balance. You've paid yourself. You're right that you don't get any more contracts for it, but when you write:
it is correct that you didn't get any more contracts, but the broker doesn't have it, you do, and it's not a cost, it's a deposit to your account. Later, if you wanted, you could withdraw it once it isn't needed as margin to secure a trade. (Unless the trade kept going down and you just lost your additional deposit too.) Perhaps I just didn't understand the way your phrased it, though.
Now, if your point is that you shouldn't respond to a margin call by adding more when you have a losing position, I completely agree. Just close the losing trade, don't put more money into it.
For more discussion outside of the scope of intraday trading, I'm afraid someone else will have to respond.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
I'm grateful for your time so far bob. With regards to how you explained margin call, so the money gets deposited, but ends up adding to your PnL? I guess that makes sense and I hope is the case. In that case you are right, and it would not count as a cost. Though you say 'deposit' as if I'm using my entire account balance to trade the max. number of contracts possible. What if im trading one AMP overnight MES contract but have a lot more in the account balance to spare (say $100,000). Then no deposit is needed for a margin call, but then what then happens at the margin call (20points down)? Nothing? It only makes sense to me if the 'margin' and 'balance' are separate entities and one transfers into the other to fulfill the margin call. It makes sense that if you just trade intraday, to think of them as one fused entity, because with intraday, margin calls/maintenance margin don't seem to exist (at least not for low asset brokers like AMP, but it does exist for IB)
Why would you think you would get a margin call if you were 20 pts down on 1 contract of MES if you had a $100,000 account? Or am I misunderstanding your comment?
Personally speaking, no, that's enough from me.
This is a community where people give and take and share. As you are new to futures trading you may not have much to share, but after four pages of your continuous question after question after question being answered for you by lots of different people, surely it wouldn't be that difficult to do the minimum courtesy of hitting the Thanks button on those replies.
Nobody here has an obligation to help anybody else.
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
Nevermind, I'm starting to see the error in my assumptions. I've been doing more research and it seems like margin IS the total account balance. I thought it was a separate deposit for each opened position. Wtf. This explains all the miscommunication between us. So to answer my own question, yes in that example, nothing would happen. And cushions for all these brokers are a lot larger than I thought, so large that it's not even worth thinking about. wtf.
This seems to have been an issue from the beginning. I can only touch on a few things now. If you do more research, I'm sure it can become more clear.
Let me walk you through one hypothetical trade. I'll use intra-day margin numbers, but there is no difference in principle with overnight trades, just different numbers.
A trader starts out with $100,000 in his account.
He buys one MES contract. "Buys" is not literally accurate. No money leaves his account and goes anywhere else when he "buys" the contract (the contract is a contract to buy at a future date. That's what futures are.) However, he had to have at least the margin that is required by the broker. So let's say his required margin was $40 per contract (I will still operate with day-trading margin requirements here). How much does he have in his account now? Exactly what he had to start with: $100,000. Nothing went anywhere. This is really important.
However, now he can't use that $40 until the trade is closed, because it is tied up to secure the one contract. Now suppose the contract goes up 10 points and he closes with a profit of $50. The profit goes into his account. The margin is freed up (it was always there.) What is in his account? $100,050. Where is the margin? Where it always was: in the account. Now he can use it because it isn't being used to secure the trade. But it never got paid to anyone, and it isn't a part of his P&L, it was just money the broker required as security for his entering the trade. Now that he's out, there's no security required.
Now suppose he lost $50 instead of making it. What is in his account now? $99,950. (Less fees and commissions.) Where is the margin? Where it always was, in the account. But you may notice that he lost more than the $40 required margin for 1 contract of MES. So what? A $40 margin requirement just means he has to have at least $40 in his account. He had more. No problem.
Suppose that instead, he lost $500? OK, what is now in his account? $99,500. But wait, what about the $40 margin? What about it? He had more. No problem.
Suppose he idiotically stayed in the trade until he had lost $99,960? He is now almost in trouble for not having enough margin, because he only has $40 left, and that's what he needs to stay in the game. Now he had better get some more money in there if he wants to stay in the trade.
So that's when the margin call comes in. He has to bring his balance up to at least $40. If he's trading overnight, and if he gets a margin call (the broker tells him to put in more margin), then he makes a deposit to bring it up to the maintenance margin.
This by the way is how all margin works, intra-day or overnight, it's just that the limits are different, and overnight is set by the CME. No other difference in any way, at all. This is what margin is.
Do you see that margin is just money that you have on deposit in your account to secure a trade? It is not "paid" to anybody. It does not go somewhere. It does not come back. It is not a cost. While you are in a trade, it is tied up in the sense that you have to keep at least the minimum required margin in the account. Normally traders think of the margin they use simply in terms of how much they want to keep on hand allocated for a certain trade. It is just that portion of your account balance that is devoted to that. There are required amounts, which the broker will enforce for both intraday and overnight trades (different amounts with different rules, slightly), but that's all that margin is. For example, a more prudent trader would use much more margin for MES than $40. Maybe he would use five times that amount, which is $200. So that means that the smarter trader is always going to keep $200 on hand per MES contract. It is kept "on hand" to cover any losses and provide a cushion. Now, the broker may only require $40, but that means that the broker is requiring a security deposit of $40. You can keep more in if you wish, and generally you should.
Do you see what margin is now?
I don't know if this helps or not. I hope it does.
I have spent a whole lot of time on some simple and basic ideas. It is not your fault and I am not blaming you, but I am finished with this thread now. I have to be. I do suggest you read a book on the futures market. I fear that somehow, you have developed ideas about how it works, as you attempted to understand what you were reading from whatever sources you read, and those ideas are a little off here and there. Sorry, but you need to be sure there are no misunderstandings still lurking somewhere in the picture you have formed about futures.
Good luck.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Man, if you have an account with $ 100,000.-- and just trade 1 MES, you can never get a margin call, because the MES is at roundabout 4300 points and with this account-size the MES could fall 20,000 points, but believe me or not this is not possible
Take a solid account-size and start with less micros, so you will be on the safe side.
This is my last comment in this thread, I would say: everything is already said multi-times. Good luck and trade well !
@minusatwelfth you can also think of it this way: the funds in your account act like 'good faith' deposit to control the futures position intraday. Discount brokerages like AMP allow these reduced daytrade margins. Daytrade Margins don't exist at the CME. You need to watch the equity in your account vs how many positions you put on. But keep in mind you already are super levered so you don't want to over lever by trading max positions. If you're in a losing trade and your equity in your account starts falling below the margin needed for your positions your broker will start liquidating positions.
