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I have only messed with common stocks and a bit of Forex trading. I'm interested in trading the Micro E-mini futures contracts. The cost of a purchase, how much you're actually putting up -- less margin -- is pretty self-explanatory, based on current bid/ask price rates and lot size for stocks and Forex pairs. It's not so clear to me with the E-mini and Micro E-mini contracts. According to what I've come across, an E-mini contract is valued at 50x the value of the market, and a Micro E-mini contract is 5x the value. Currently the MNQ is trading around $16,379, making the value of the contract $81,895??? How then are you able to make a marginless long trade of this contract for less than $1k? What are the numbers involved? I have searched and searched all over trying to understand this, but no one seems to touch on it.
Can you help answer these questions from other members on NexusFi?
By coincidence, we had almost the same question earlier today, when someone asked about the cost of a contract in gold, if done "without leverage," by which he meant, not on margin. The thing is, you can only enter into a long contract on margin. In his case, he wanted to know how much had to be put up, based on the current physical price of gold. In your case, you are asking about an mini contract for NQ (or the micro, MNQ), and are looking at the price of the index and the value per point. But it's the same issue. You will never need to have that kind of money unless you actually go to settlement. That's when you will, because that's when you actually buy or sell the asset that the contract is for.
To save typing, I've just pasted in my reply to him here. If you just read "index" for "gold," it is the same story. A futures contract does not involve ownership of the underlying asset, it's a contract to buy the asset in the future:
Let me know if this is clear to you.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Greatly appreciate the response. So, how much are you actually deemed to be "in for" (prior to price fluctuations affecting P/L) based on the amount deposited in your brokerage account if you say buy long on 5 contracts of the MNQ at a price of say $16,239 -- prior to actual settlement?
If I understood you correctly, you will need to have in your broker account at least enough to cover the required margin per contract. ("Margin" does not mean what it means with stock trading; there is no loan involved. "Margin" in futures is the minimum amount you need per contract to be either long or short. I think that's what you are looking for.)
The margin is not directly related to the price of the index. I think you may be thinking in terms that apply to stocks or options, but not to futures. Your required margin will be set either by the broker (for a day trade -- held only during the day session -- "intraday margin") or by the exchange (if held over the day's end at 16:00 CT.)
But this will not be a variable amount based on the price. It will be a set amount for that particular futures instrument and holding period (day or overnight -- held past the end of the trading day at 16:00 CT. Different brokers may have different cutoff times when you must close your day trade so it doesn't go over the time limit.)
Brokers will vary all over the place for day trades, with some having very low requirements. But the exchange requirements will be the same for all brokers for non-daytrades.
I looked up one broker, NinjaTrader Brokerage, which has a clear explanation of their rates and the exchange's rates. (This is not a recommendation; they just came to mind.)
NinjaTrader will require $100 per contract for a day trade position in MNQ (they only require $50 for MES). So, assuming you close out before the day's end, you can hold your 5 contracts in MNQ if you just have $500 in the account. But don't do this. If the price of MNQ slips just one tick (a quarter of a point, so 50 cents), your margin will be insufficient because the losses are immediately charged against your account, and you will probably have the account closed. Make sure there is enough above the minimum that you will be able to manage an adverse move. This is up to you, but that is why you should never only deposit the minimum margin in a futures account. Generally, use several times the required amount. The very small amounts you have to put up for futures trading are part of the attraction, but also part of the risk.
If you hold the position "overnight," (past the exchange close at 16:00 CT), you will need to have the exchange-required "initial margin" of $1,870 per contract, (or 5 x 1870 = $9,350 for 5 contracts) to establish the position (as soon as you cross the end of day mark), and then keep at least the "maintenance margin" of $1,700 per contract (or 5 x 1700 = $8,500.) Assuming my math is right.
The thing is, always have more than the minimum, because losses (and gains) decrease (or increase) your account immediately (well, actually, when the account is marked to market at night, or when you close out -- but the broker is going to be watching your account and you can get suddenly closed if you have a loss that brings you below the margin.)
This may not be totally clear, but have a look at these links to fill in any details:
Thank you! I am new to this and have similar questions.
I checked the website below. Regarding MNQ, when i buy/sell one contract, how much underlying asset is this contract linked to?
I can see the margin requirement below, but nothing regarding how large this contract is. https://www.interactivebrokers.com/en/index.php?f=26662
I can't see find that info here either. https://www.cmegroup.com/trading/equity-index/us-index/micro-e-mini-futures.html
If the current price is 16044.75 for MNQZ1, is the contract buying/selling 16044.75 * 5 = $80223.75 worth of assets?
Futures contracts on Indexes are cash settled. There is no direct linkage for the buying or selling of the stock shares that comprise the index and yes the notional value of the MNQ is the Index * 5 but in reality it is all smoke and mirrors as the value of futures contracts do no move in lock step with the underlying basket of stocks. Unless you consider premium to gauge OB/OS or for buy/sell arbitrage then it's best to think of futures as existing in their own separate reality and not think about what is going on in the distant background.
To put it another way, keeping an eye on the underlying Index while trading a futures contract on that Index will likely turn out to be more of a distraction than a benefit.
Now, let me explain why I said "sort of." When you "buy" a futures contract, you are not buying anything. You are entering into a contract to buy (or sell) an asset at a later date. Until the contract goes to settlement, you do not own anything, and you do not sell anything, and you do not own any asset. You have contract to do one of these things, in the future. Basically, you've just said you would buy or sell something, and put up a small margin deposit to hold it for you.
The margin, which the exchange also calls the "performance bond," lets you be in the contract until settlement, and the margin is debited for any losses and credited for any gains. It's what you have at risk. Performance bonds (margin) are explained here: https://www.cmegroup.com/clearing/risk-management/performance-bonds-margins.html
So, any contract has a "notional value," but unless you are a very large institution that is hedging your equity or other holdings (which you are not or you would not have asked the question ) or you intend to deliver or take delivery (which involves very large sums of money, and as a retail trader you will not usually do that), the notional value is not an important number for you. You are going to close your contract well before you go to delivery.
What is important is the point value (for MES, $5/point) and the margin you have put up for the contract. Either the broker, for day trades, or the exchange, for trades held past the close, will set the minimum you put up as margin. The change in the price will be charged or added to your margin, and that's what is important to you as a retail trader.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Thank you! The link you posted above is very helpful. "Now assume E-mini S&P 500 futures are trading at 2120.00. The multiplier for this contract is $50."
When you say 1 point, do you mean 1 tick? Where can i check the multiplier for different contracts? I know the dow is at 16000 right now. Where can I check the multiplier for that
The reason I need to know the notional value per contract is because I plan to trade futures in my IRA account and I need to make sure I am not overly leveraged to blow up my IRA.
I'm not sure if the notional value will help with that question. The issue of blowing up or not blowing up an account is one of risk and volatility. Also, of course, not being wrong a lot,( ) or by large amounts, and controlling your losses.
All of this comes down, pretty much, to the amount of margin you put up to back your trades (there are minimums, but no maximums). I guess you can say the notional value of the S&P, say is x amount, so I will only risk a given percentage of that, and if that's your reasoning, I suppose it makes some sense. What actually makes sense is not to put more at risk than you can afford to kiss good-bye to without a qualm.
Since we're talking about an IRA, we should be talking about a very small amount of what you have to trade/invest with. There are people who would say not to trade retirement money in futures, and definitely there are futures contracts that are inherently more risky, because of the speed they move and change, than others. Anything connected with NQ pretty much fits the description, at least to more conservative types.
But weighing those things is up to you. Futures are very risky, and the best rule is to keep your amount at risk to what you can easily lose, without any bad things happening to your retirement, finances or mental health....
Good luck.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
