Unlike intraday margins specified by brokers, which represent the minimum balance an account must maintain, FX margins are imposed by exchanges.
Below is the continuation of the first article on Futures Daily Margin Trading: NinjaTrader Trade Desk’s Intrady Margin, detailing the intricacies of margin trading using a hypothetical account owned by the trader of futures contracts, Jane Smith.
Foreign exchange margins: initial margin
Initial margins are set by the respective exchange and represent the amount required to hold a position in future trading sessions.
Unlike intraday spreads, FX spreads can change frequently and fluctuate based on expected future volatility. Additionally, they are only applicable when markets are closed from 4:00 p.m. to 5:00 p.m. Central Time for most CME products; stocks, metals and interest rates close at 4:00 p.m. central time. Although the markets close at 4:00 p.m. Mr. Central Time, traders must be online with FX margins by 3:45 p.m. Mr. Central Time, as the spread desk settles accounts in the last 15 minutes of the trading session that do not meet FX margin requirements. to avoid margin calls.
Currently, the initial margin to complete a contract on the ES from session to session is $5,225. With an initial margin price of $5,225, Jane’s $10,000 trading account would only allow her to hold one contract overnight until the next trading session. If Jane tried to roll over 2 contracts from the ES to the next trading session, she would trigger a margin call ($5,225 x 2 = $10,450 (initial margin) > $10,000 (Jane’s balance)).
A margin call is a situation where the FCM deposits funds ($450 for Jane $10,450 – $10,000 = $450) on behalf of the trader. Once the margin call is triggered, Jane would have 24 hours to take the call by transferring the funds posted in her name.
Change Margins – Maintenance Margins
Maintenance margins are a set minimum margin (per pending futures contract) that a trader must maintain on positions held for more than one day.
If Jane only has one contract the next day, but does not trade that day, she will only need to post a maintenance margin for that day. Maintenance margins are lower than initial margins and only concern positions that have been open and unchanged for more than one day.
For example, Jane has a multi-day contract priced at 2,300. After covering a margin of $5,225 on day 1, you only need $4,750 for each subsequent day, as long as you don’t trade . An account adding to a position (long 1 to long 2 contracts) should meet the initial margin for both contracts on the day contract 2 is added, which essentially resets the margin.
In short, intraday margin is the minimum account balance required to enter into a contract during trading hours. Foreign exchange margins are divided into two categories, initial margin and maintenance margin. Initial margin is the balance needed to carry a contract to a new trading session. Maintenance margin is the amount needed to hold the same position for several days.
Violations occur when an account is in a position with a balance below intraday requirements or when an account takes a position without having the funds to meet the initial margin. Both of these violations should be avoided at all costs, as they can lead to liquidations and fines from the risk office. If you have any questions about this, please contact the NinjaTrader trading desk.