A little confused about margin & leverage

[Richie_A]

Hi guys,
Real newbie here, just a bit of background: I have £5k in a discount brokerage account and I'm looking to start learning to trade STIRs.

I was just wondering if one of you guys could clear up my confusion by completing this example:

Say I want to buy 10 lots of 'short sterling' March '08 contracts at 94.39.

Would that mean that £943.90 of my account is tied to these contracts? I thought that each contract represents a certain amount of pounds?

I'm just not quite sure how the leverage/margin works so i'm trying to be completely sure before I take the plunge.

Cheers
Rich

 

[grantx]

Rich,

Margin varies between brokers but for short sterling but it will be around £500 per contract,ie with £5k trading capital, you can trade up to 10 contracts.

Short sterling is a cash settled (?)future on interest rates: 100 - 94.39 = 5.61(%). The only thing you pay is margin. When you close a position, you will make a profit or loss depending on if you are short or long and whwther the contract value (94.39) has fallen or risen. Your profit/loss will be the difference between your opening price and the closing price.

As newbie, you may find trading STIRS somewhat complex - they are usually traded by the experienced. Maybe consider the mini indexes or bonds.

Grant.

Grant.

 

[Richie_A]

Thanks again Grant, always seem to there to answer my questions

I'm interested in STIRs because I read on here that's what they give to graduates who join prop shops to start with. In what way were you referring to them being complex? - (i'm not being argumentative just interested in finding out)

Cheers
Rich

 

[Richie_A]

Also for one contract, with £500 down on margin, what is the profit/loss on a pip movement?

 

[grantx]

Richie,

Perhaps my reply indicates my lack of knowledge. These attachments may help.

Can't remember tick size value.

Grant.

 

[new_trader]

[EDIT]

As newbie, you may find trading STIRS somewhat complex - they are usually traded by the experienced. Maybe consider the mini indexes or bonds.

Grant.

Grant.

Yes, stick to the E-mini contracts - They are far less complicated and usually traded by newbies and the inexperienced. You will start making money in no time.

 

[Directional]

I'm interested in STIRs because I read on here that's what they give to graduates who join prop shops to start with.

the grads trading STIRS will usually be trading calendar spreads rather than outrights.

Lots of reasons this is difficult to do via retail broker, but the biggest reason being commission costs - a typical spread trade involves four or six legs minimum, and since you're normally aiming for just one tick per trade, this means you've got to pay less than the tick value in costs for those six lots otherwise you'll be losing money even if you make a profit from the trade.

Tick value:
Euribor €12.50
SSterling £12.50 (nb: this goes to half ticks next month, £6.25)

If you want to learn stirs, then you need to read a book like this (Amazon.co.uk: Trading STIR Futures: An Introduction to Short-term Interest Rate Futures: Books: Stephen Aikin) before you risk any cash. And even then, you need to sim trade until you're totally confident you know what you're doing.

 

[Richie_A]

Right so e-mini futures are appropriate for newbies? What would you say about the other mini futures?

I'm not hoping to 'make money' at this stage, per say, I'm just wanting to learn and see if i can preserve my capital/stay in the game. At the moment I'm just researching all the possible futures products before committing anything so I'll be interested in hearing about any products that won't blow up my entire account if a couple of trades go south.

Ideally I want to risk £100 (stop loss - i'm using a system) per trade, is this way too small to actually trade any contract at all?

 

[Richie_A]

Thanks arb, yeah I'm waiting on a paper trading account to be activated so I totally agree with becoming confident with it before doing anything for 'real.'

 

[Rhody Trader]

Right so e-mini futures are appropriate for newbies? What would you say about the other mini futures?

As a newbie, you always want to be able to trade the smallest possible contracts you can, so you can manage your per trade risks. As such mini contracts are always a better choice than the full-sized one. And most mini futures offerings are in the more popular markets, so they offer a wide array of alternatives.

Ideally I want to risk £100 (stop loss - i'm using a system) per trade, is this way too small to actually trade any contract at all?

That depends a lot on your system. For example, £100 is about 4 points in the mini S&P contract. Maybe that's a wide enough stop for the way you want to trade. Maybe it's not. You would need to look at the market(s) in question to see what the point values are and how they work with your system.

 

[grantx]

Richie,

If you have a method, trade on a simulator for a few months. If it doesn't work on the simualtor, it won't work with hard cash. Plus it will allow you to experiment or refine your method if necessary without the risk.

Maybe look at the bund (1 point = Euros 10/£7.40) or the bobl which trades in half-point increments (Euros 5).

Grant.