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Question about intraday margins


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Question about intraday margins

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  #1 (permalink)
minusatwelfth
phu quoc, vietnam
 
 
Posts: 15 since Jul 2021
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So I'm new to futures trading and was wondering how to calculate the number of ticks or percent moving against me to activate margin call. I think I understand about initial margin, maintenance margin pretty well, but how does the intraday margin rate affect calculations?

Why do some brokers only have a $40 intraday margin for MES? Doesn't this increase the leverage to about x500, meaning just one point moving against you will margin call? Furthermore some brokers like amp don't state the corresponding maintenance margin. Here's my current understanding with a solid example.

No intraday margin rate:
-Bob buys long 1 MES contract at initial margin of $1000. MES quote is at 4000points. So it's worth $5x4000=$20,000
-This means his leverage is 20x
-Let's say there is a 10% difference between initial and maintenance margins

10% /20 = 0.5%

Therefore if MES quote drops by 0.5%, i.e. it reaches 3980, margin call will be activated.

Now how does the addition of an intraday margin rate change this calculation?

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  #2 (permalink)
 matthew28 
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I'm always a bit unclear about Margin myself, but if you buy one MES contract worth $5/pt and it goes 20pts against you, you are only down $100.
You started with $1,000 so you are now at $900 and as far as I understand Margin, you could trade the account all the way down to a balance of $40 (during the day, not holding overnight when Margin increases while the markets are closed for an hour at the end of the CME day).
That's my understanding any way but as I said I am not totally sure about Margin as my thought has always been that if it is that critical to a trader, their account is too small for the size they are trading and that is an unsustainable way to trade anyway and I have no intention of trading my account all the way down to pretty much zero as I would stop long before then.

Having said that, I used to read that it was often recommended by brokers to trade one contract per $10,000 account. That was full size contracts so with MES at 1/10th the value, your suggestion of one contract for $1,000 of account value sounds okay to me.

Though personally, for day trading a 20pt stop on the ES/MES seems very large (but I don't trade the ES).

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  #3 (permalink)
minusatwelfth
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@matthew28

The few webpages that ive read doesn't seem to corroborate with your explanation.
Though I still lack 100% clarity on it as no website explains the exact calculation.

They seem to imply that the intraday margin is a percentage of initial margin and acts as the new initial margin. So with AMP and MES, you would pay $40 for 1 contract? So where is the new maintenance/margin call level? is it at $36 or $0? Either way, if 1-8 points move against me, im dead?

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 tr8er 
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Of course it wouldn't be smart to use the entire margin. If the intraday margin is $ 40.-- and your account-balance is $ 400.-- you could (theoretical) trade 10 contracts, but it couldn't go 1 tick against you. So if you trade just 1 contract with $ 400.-- account-balance you can lose $ 360.--

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  #5 (permalink)
minusatwelfth
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@tr8er

ok I get what you're saying. So that means my understanding about intraday margin correct? Where is the margin call level at $40 per contract?

If my above understanding is right, that means small intraday margin is actually bad and riskier than the exchange's initial margin, for 2 reasons.

1) More likely to receive margin call. When this happens, you're basically throwing money away since you're not gaining any more contracts. Now your position must make a larger win than before to be profitable, and the broker gained more money for no reason. It means even temporary drawdowns are now bad. This could have been avoided with a higher initial margin.
2) Your strategies must now have incredible accuracy and you cannot trade anything with an ATR greater than the margin call level, since it could happen just due to candle volatility. At $40, you only have a cushion of 1-8 points, depending on what the margin call level is, as opposed to CME's cushion of about 20points

Is my analysis correct?

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  #6 (permalink)
 kevinkdog   is a Vendor
 
 
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This is a REALLY dangerous conversation with intraday margins.
I think @matthew28 said it best: "my thought has always been that if it is that critical to a trader, their account is too small for the size they are trading and that is an unsustainable way to trade anyway"

That said...

If intraday margin is $40, and you account equity falls below $40 (if that is the intraday "maintenance margin" level), you are subject to a margin call. Some brokers will just auto close your position, some might give you an hour to add funds, etc. You should talk to your broker for details.

Some brokers also have rules for intraday margins regarding having active stop losses, etc. And brokers might have different end of day exit times. Again, your broker can give their exact rules.

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minusatwelfth
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@kevinkdog

Thanks for your advice, looks like I really have to just ask my broker.

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  #8 (permalink)
 tr8er 
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minusatwelfth View Post
@tr8er

ok I get what you're saying. So that means my understanding about intraday margin correct? Where is the margin call level at $40 per contract?

If my above understanding is right, that means small intraday margin is actually bad and riskier than the exchange's initial margin, for 2 reasons.

1) More likely to receive margin call. When this happens, you're basically throwing money away since you're not gaining any more contracts. Now your position must make a larger win than before to be profitable, and the broker gained more money for no reason. It means even temporary drawdowns are now bad. This could have been avoided with a higher initial margin.
2) Your strategies must now have incredible accuracy and you cannot trade anything with an ATR greater than the margin call level, since it could happen just due to candle volatility. At $40, you only have a cushion of 1-8 points, depending on what the margin call level is, as opposed to CME's cushion of about 20points

Is my analysis correct?

NO, why only 1 - 8 points? It all depends on your account-balance. As I said, if you your account-balance is $ 400.-- and trade 1 contract it can go down 72 points. And just to clarify, this intra-day margin is only valid (as the name says) intraday. You have to open and close the trade on the same (trading) day.

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 matthew28 
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minusatwelfth View Post
@matthew28

The few webpages that ive read doesn't seem to corroborate with your explanation.
Though I still lack 100% clarity on it as no website explains the exact calculation.

They seem to imply that the intraday margin is a percentage of initial margin and acts as the new initial margin. So with AMP and MES, you would pay $40 for 1 contract? So where is the new maintenance/margin call level? is it at $36 or $0? Either way, if 1-8 points move against me, im dead?

My explanation, Tr8er's and Kevin's all seem to be basically the same which is reassuring. For one contract you could in theory trade down to an account balance of $40 before the margin call. You don't "pay $40 for 1 contract", you just need to have that amount in your account and the account balance can't go below that level if you have one MES contract on during the day.

That's it. If the day trading margin is $40 that is the minimum you need in your account to be able to open a position with one contract. But then of course you also need enough equity to cover the risk of the trade.
As you should only be risking a very small percentage per trade, if your account equity gets so low that you can only take a few more trades before getting a margin call, you have already lost too much and are risking too high a percentage of your account equity per trade and it is just random gambling. At that point a person would be better to stop and keep something in their account rather than almost inevitably in effect trade it down to nothing.

As you said earlier, ask your broker, they have gone to the trouble of opening your account and it is in their interest to have customer's trading for the long term and generating commission. They should have available all the FAQs you need.

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  #10 (permalink)
minusatwelfth
phu quoc, vietnam
 
 
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tr8er View Post
NO, why only 1 - 8 points? It all depends on your account-balance. As I said, if you your account-balance is $ 400.-- and trade 1 contract it can go down 72 points. And just to clarify, this intra-day margin is only valid (as the name says) intraday. You have to open and close the trade on the same (trading) day.

I agree with what you said here, however by "dead" I mean margin call, not total account bankruptcy. The margin call usually happens 10% below the initial margin for just the exchange at least, and to me a margin call is already like a loss, since I need to pay extra money that isn't being converted into more contracts. This is why for AMP i guessed it was possibly $36. Maybe you've been receiving margin calls without realising it?

@matthew28 I don't know what Im not getting but to me it seems like your explanation is not lining up with tr8er's at least. It seems clear that tr8er is implying each contract costs $40 because he said with $400 you can buy 10 contracts. Though kevin's post seems to corroborate with yours more, but 4/5 websites agree with mine and tr8er's interpretation. The data is still mixed... I have asked my broker and am awaiting a response. If your interpretation is right, then $40 is a new maintenance margin, so it should probably be called intraday maintenance margin... So you're saying MES still costs about $1k to buy at AMP? It doesn't corroborate with how interactive brokers listed their futures margins table (their intraday margin is only like 20% less than CME's initial margin, it's still above $1k, and they have an intraday maintenance margin too), so I don't know what to think at this point.
https://www.interactivebrokers.com/en/index.php?f=26662

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