Margin Flashcards
What is Margin
A good faith deposit and not part of cost
Is bonafide hedger margin lower than speculator?
yes
What is Initial Margin (equity)
a requirement to start a position. Equity is calc’d daily based on contract settlement value
What is Variation (Mainetance) Margin
requirement to keep the position. If equity falls below VM it must be brought back up to IM
Is the settlement value always the last trade?
No, this is not always the case
Whats the equation to calc Total Equity
Total Equity = Account Cash Balance +/- Open Trade Equity
What is Total Equity?
Is equal to the money deposited, net of withdraws (referred to as the Account cash balance) +/- gain or loss to date (referred to as open trade equity)
What is open trade equity?
Essentially just what you are up or down on the position (at settlement)
What is the account cash balance?
ACB is the money deposited into the account. This could come in the form of IM + additional deposits for variation margin
When can you withdrawl cash from your Futures margin account?
only when equity is above initial margin requirment. Notice that is NOT accounting for additional deposits
What is a good rule of thumb for how much you can lose in a margin account before getting called?
IM - VM.
Initial - Variation Margin = the amount the price of the commodity can drop before your margin called
What is pyramiding
that is a trader using excess equity (equity above IM) for margin on a new position
If a customer switches a contract from one month to another month, will the margin on his existing contract be used to meet the margin requirement on the new contract?
Yes
What is the maximum amount a customer can withdraw from a margin account? Equation?
The max amount he can withdraw is the difference between Equity n account an Exchange minimum (initial)
Equity - Exchange min = excess
Variation margin is the amount of funds deposited by a customer in addition to the original margin when:
The market price moves against his position
