Futures Trading Margins: Intraday Margin

Margin trading represents a deposit with the broker to protect both the trader and the broker from potential losses on an open trade. With this deposit, day traders can trade instruments worth well above the margin price through leverage.

For example, the current trading spread for the E-mini S&P 500 (ES) is $500, and the ES is trading at around 2,375 points. With each point of the ES valued at $50, that brings the true cost of an E-mini S&P contract to almost $119,000!

Keeping in mind the general concept of margin, futures trading margins consist of three types of margin:

  • Intraday margin
  • initial margin
  • maintenance margin

This article will focus on intraday margin, while initial and maintenance margins (commonly known as swap margins) will be covered in a later article. At a high level, intraday margin is the minimum account balance required to enter into a contract during trading hours. Initial and Maintenance represent the other half of the margin equation.

Intraday margin for futures trading

In its most basic form, a product’s intraday margin represents the minimum balance that an account is contractually required to maintain during a trade.

Let’s start by looking at the E-mini S&P 500 (ES) and Crude Oil (CL), two common futures instruments with different margin requirements. The different margin requirements for ES and CL stem primarily from the unique characteristics of each instrument. In general, there is less liquidity and higher volatility in CL, so more margin is needed to protect against large moves in the opposite direction from an active position.

  • A $1,000 futures trading account traded with the CL would be debit, or zero, after a 100 tick move (each tick is worth $10). Although rare, moves of this magnitude do occur on occasion and can be fast enough that the trader and a brokerage’s risk management team are unable to liquidate the position.
  • Since the ES is a more liquid market and has more volume, an equally large 100 tick move on the ES would typically occur over a longer timeframe. Because more contracts would be traded in a 100-tick ES move, traders have more opportunity to exit a position before an account goes into debit, so the daily trading margin for ES is lower than the CL.

Example of intraday margin

To demonstrate how intraday margining works, let’s look at a hypothetical account owned by Jane Smith with a balance of $10,000.

Currently, the intraday margin requirement for an ES contract is $500 and the CL is $1,000. As a result, Jane could choose to trade:

  • An ES contract using $500 of your $10,000 account balance leaving $9,500 of excess margin
  • A CL contract using $1,000 of your $10,000 account balance leaving $9,000 excess margin

Although not advised, in theory Jane could trade up to 20 ES contracts or 10 CL contracts at a time depending on her account size. If this were to happen, Jane would be trading “full leverage” and violate intraday margin requirements if the market moved one tick against her.

A market move in the opposite direction to an open position at Full Leverage would likely trigger a margin call from the brokerage. Under these circumstances, Jane would have the option of meeting margin requirements and continuing to trade, depositing the necessary funds, or facing liquidation of the trading desk. In the event of liquidation, Jane would be liable for business losses in addition to liquidation costs.

Traders should always take note of the different intraday margin requirements of the contracts they are trading. Information on margin requirements, as well as other product specifications, can be found here.

Stay tuned for additional information from NinjaTrader Trade Desk on trading margins.

Leave a Comment