Q&A

What is true about the initial margin on a futures contract?

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What is true about the initial margin on a futures contract?

Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.

What is the purpose of a margin requirement in futures trading?

Futures margin requirements protect the trader from catastrophic loss. In the event of an unexpected drawdown, open positions are liquidated in accordance with predefined margin requirements.

Do futures contracts require an initial margin requirement be paid?

Forward contracts have no default risk. Futures contracts require an initial margin requirement be paid.

Who puts up the initial margin required for futures trading?

In futures trading, the margin requirements can be as low as 3\% to 12\% of the traded contract value. The initial margin is the amount a trader must deposit with their broker to initiate a trading position.

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Why is initial margin required?

A margin account allows an investor to purchase stocks with a percentage of the price covered by a loan from the brokerage firm. The initial margin represents the percentage of the purchase price that must be covered by the investor’s own money and is usually at least 50\% of the needed funds for U.S. stocks.

What are initial margin requirements?

An initial margin, or initial margin requirement, is the amount an investor must pay in cash for securities before the broker will lend money to that investor to buy more securities.

What does initial margin requirement mean?

What Is Initial Margin? Initial margin is the percentage of the purchase price of a security that must be covered by cash or collateral when using a margin account. The current initial margin requirement set by the Federal Reserve Board’s Regulation T is 50\%.

What is an initial margin requirement?

Initial margin is the percentage of the purchase price of a security that must be covered by cash or collateral when using a margin account. The current initial margin requirement set by the Federal Reserve Board’s Regulation T is 50\%.

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What is the initial margin requirement?

Initial margin is the percent of a purchase price that must be paid with cash when using a margin account. Fed regulations currently require that the initial margin is set at a minimum of 50\% of a security’s purchase price. But brokerages and exchanges can set initial margin requirements higher than the Fed minimum.

How do you find the initial margin requirement?

Multiply the purchase price by the initial margin requirement percentage. Suppose you want to buy 500 shares of a stock at $40 per share. The purchase price comes to $20,000. If your margin requirement is 65 percent, multiply $20,000 by 65 percent to determine your initial margin requirement of $13,000.

How do you find initial margin for futures?

Initial Margin = SPAN Margin + Exposure Margin

  1. The value of the initial margin varies daily as it depends on the futures price.
  2. Remember, Initial Margin = \% of Contract Value.
  3. Contract Value = Futures Price * Lot Size.
  4. The lot size is fixed, but the futures price varies every day.

How do you use initial margin?

Key Takeaways

  1. Initial margin is the percent of a purchase price that must be paid with cash when using a margin account.
  2. Fed regulations currently require that initial margin is set at a minimum of 50\% of a security’s purchase price.
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What are the margin requirements for futures trading?

Futures margin requirements are set by the exchanges and are typically only 2 to 10 percent of the full value of the futures contract. Margins are financial guarantees required of both buyers and sellers of futures contracts to ensure that they fulfill their futures contract obligations.

What are the requirements for opening a futures position?

Before a futures position can be opened, there must be enough available balance in the futures trader’s margin account to meet the initial margin requirement. Upon opening the futures position, an amount equal to the initial margin requirement will be deducted from the trader’s margin account and transferred to the exchange’s clearing firm.

What is the minimum margin required for fedfed regulations?

Fed regulations currently require that initial margin is set at a minimum of 50\% of a security’s purchase price. Initial margin requirements are set by exchanges in the futures markets.

What are the margin rates for fundfutures?

Futures Margin Rates Description Symbol Root Initial Margin Maint. Margin Day Trading Rate MINI DOW JONES ($5) YM $9,900 $9,000 25\% of initial MICRO ES MES $1,210 $1,100 25\% of initial MICRO NQ MNQ $1,760 $1,600 25\% of initial MICRO RUSSELL M2K $715 $650 25\% of initial

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