Can someone please explain margin requirements for the day trader to me?

[sopodo]

I have been doing a ton of reading and found some brokers that have special accounts for day traders who want to trade on emini futures on indices. They have margins like $300, $400 and $500. They also say $0 minimum account account size.

It's my understanding that this means that their is no minimum amount that I will need to fund my account with them but to trade the emini incides I would have to put $300 into the account for day trading. Now how does that work? I read that to purchase 1 emini futures contract on the S&P 500 that's $50 x the total point value of the index which clsoed today at 1064.88 = $53,244 Now I don't get how $300 can give you that much margin, that's like 1:177 leverage. So $300 is all I need makes emini futures very attractive but what about initial margin and maintenance margin?

If it really $300 is all I need to start trading then that's amazing.

I would really like your views on this please

Many thanks in advance

 

[pboyles]

I have been doing a ton of reading and found some brokers that have special accounts for day traders who want to trade on emini futures on indices. They have margins like $300, $400 and $500. They also say $0 minimum account account size.

It's my understanding that this means that their is no minimum amount that I will need to fund my account with them but to trade the emini incides I would have to put $300 into the account for day trading. Now how does that work? I read that to purchase 1 emini futures contract on the S&P 500 that's $50 x the total point value of the index which clsoed today at 1064.88 = $53,244 Now I don't get how $300 can give you that much margin, that's like 1:177 leverage. So $300 is all I need makes emini futures very attractive but what about initial margin and maintenance margin?

If it really $300 is all I need to start trading then that's amazing.

I would really like your views on this please

Many thanks in advance

Its true that there are no account minimums with some brokers and margins start at $300. However what you need to consider is that even the smallest loss on your first trade will put you under $300 and you wont be able to trade again. Its more realistic to start with $1000, that way you can take a couple of drawdowns and still trade again. If you don't hold your position overnight you wont need any more margin.

The e mini S&P moves in $12.50 increments so if you trade 1 contract 4 ticks will make you $50. It is highly leveraged so you need to be very careful with stops etc.

 

[timsk]

Ho Sopodo,
Don't even think about trading the ES with a mere $500 margin account would be my advice. IMO, you need around $5,000 or more per contract traded if you're to survive and prosper. Is it possible to do really well with a lot less? Yes, of course it is, but the smaller the size of your account, the greater the odds that are stacked against you.

Below is an extract from a FAQ that I'm working on (not yet posted). Some of it won't make a lot of sense because it's out of context but, hopefully, you'll get the point about account size.

"Generally speaking, the ability to trade size tends not to be the main concern for most retail traders, because their accounts aren’t big enough for it to be an issue. However, what is an issue is the exact opposite; their accounts are too small. Trading too much size with a small account is a recipe for disaster. It’s another monkey error made by novice traders who focus on the potential gain, as opposed to the potential loss. The ES can easily move 20 points in one day. If you’re trading say, fifteen contracts, that’s a profit or loss of $15,000! Great if it’s the former and a bummer if it’s the latter! Even if you’re happy to risk 5% of your equity on any one trade (not recommended by the way), you’ll need an account funded to the tune of $300,000, in order to comfortably take a hit this big and to stay within your 5% risk parameter. Many brokers advertise margins as low as $500, i.e. you only need $500 in your account per contract traded. So, in theory, you’d only need $7,500 in your account to trade fifteen ES contracts. Don’t be lured by this – it’s financial suicide. You’re far more likely to ‘blow up’ – i.e. lose all your money - than you are to end the day eleven grand plus change to the good. The index would only have to go against you by ten points and your entire account would be wiped out in a single trade."

Tim.

 

[pboyles]

Ho Sopodo,
Don't even think about trading the ES with a mere $500 margin account would be my advice. IMO, you need around $5,000 or more per contract traded if you're to survive and prosper. Is it possible to do really well with a lot less? Yes, of course it is, but the smaller the size of your account, the greater the odds that are stacked against you.

Below is an extract from a FAQ that I'm working on (not yet posted). Some of it won't make a lot of sense because it's out of context but, hopefully, you'll get the point about account size.

"Generally speaking, the ability to trade size tends not to be the main concern for most retail traders, because their accounts aren’t big enough for it to be an issue. However, what is an issue is the exact opposite; their accounts are too small. Trading too much size with a small account is a recipe for disaster. It’s another monkey error made by novice traders who focus on the potential gain, as opposed to the potential loss. The ES can easily move 20 points in one day. If you’re trading say, fifteen contracts, that’s a profit or loss of $15,000! Great if it’s the former and a bummer if it’s the latter! Even if you’re happy to risk 5% of your equity on any one trade (not recommended by the way), you’ll need an account funded to the tune of $300,000, in order to comfortably take a hit this big and to stay within your 5% risk parameter. Many brokers advertise margins as low as $500, i.e. you only need $500 in your account per contract traded. So, in theory, you’d only need $7,500 in your account to trade fifteen ES contracts. Don’t be lured by this – it’s financial suicide. You’re far more likely to ‘blow up’ – i.e. lose all your money - than you are to end the day eleven grand plus change to the good. The index would only have to go against you by ten points and your entire account would be wiped out in a single trade."

Tim.

I should add that my earlier post assumes you know what you're doing and can trade profitably. If you're opening an account just to have a go at trading then you could blow $1000 on 1 contract in no time. If however you are trading with 4 or 5 tick stops and you actually know how to trade then its not such a crazy idea, your losses would be $50 to $60 per trade, 5% to 6%. What you really need to do is to trade on sim until you are consistently profitable.

 

[sopodo]

Its true that there are no account minimums with some brokers and margins start at $300. However what you need to consider is that even the smallest loss on your first trade will put you under $300 and you wont be able to trade again. Its more realistic to start with $1000, that way you can take a couple of drawdowns and still trade again. If you don't hold your position overnight you wont need any more margin.

The e mini S&P moves in $12.50 increments so if you trade 1 contract 4 ticks will make you $50. It is highly leveraged so you need to be very careful with stops etc.

Many thanks for your replies pboyles and timsk, much appreciated. I wanted to make this below post out to both of you.

I know that $1000 would be better. But I am trying hard in a simulator to practice my futures trading strategy till it's second nature. I am hoping to start with a $300 margin account, I am looking to make anywhere from a few ticks to ten tick profits. I will be setting my stop loss at 5 ticks which is $62.50. I will always have a stop loss set. I know how risky futures trading is. I once liked options as you couldn't lose more than you put in unless you exercised the option rather than just selling it. What I didn't like about options is needing to meet a strike price which index futures don't have which is why I am attracted to trade the emini indexes.

I am only looking to purchase 1 contract when starting out and as I get better and better I will start position sizing.

I just want to make sure I got this right, as long as I have my stop loss set to sell at 5 ticks below, then I am safe right? I will always lose $62.50 per contract?

$62.50 I am okay with a $300 margin account. That happening 4 times and I will just have $50 left which I can't do anything with. That's fine, I think with a lot of practice in a simulator I may very well be able to turn that $300 into a small profit over time. I may lose some trades but I will make profit as well.

I asked about the initial margin and maintenance margin. So with a $300 day trading account will that be split 50/50 half in the initial margin and the half in the maintenance margin, is that how it works?

Can I also ask this, what if suddenly the emini s&p 500 moved 1 tick up and then dropped 3 ticks below. But my stop loss is set at 5 ticks below. Then theirs movement and the index rises up to like 5 ticks then I can sell. So what I am trying to say is, it doesn't matter if the s&p 500 goes out of the money as long as during that same trading day it goes into the money before market closure and I won't lose as long as my stop loss isn't activated due to a price decline to where my stop loss is set?

I hope you can please answer those questions I have

Many thanks in advance

 

[kwickwool]

Hi Sopodo,

Dont take this the wrong way but if you really have to ask these questions when there is so much information out there to read up on then it does not bode well for your furture in the business. This is cut throat buddy as in only the very strongest survive, spoon feeding this much I would question if this is right for you. Bets advice stick to the lowest trading capital you can to keep it real and become profitble before you ramp up, do that and you minimize the risks.

 

[sopodo]

Its true that there are no account minimums with some brokers and margins start at $300. However what you need to consider is that even the smallest loss on your first trade will put you under $300 and you wont be able to trade again. Its more realistic to start with $1000, that way you can take a couple of drawdowns and still trade again. If you don't hold your position overnight you wont need any more margin.

The e mini S&P moves in $12.50 increments so if you trade 1 contract 4 ticks will make you $50. It is highly leveraged so you need to be very careful with stops etc.

Hi pboyles,

I wanted to pull this thread back up rather than making another one.

I am currently after a broker than I can setup an account with that offers $0 minimum accounts. But I am looking to get a standard $500 margin to trade only 1 contract per trade at a time. I might use mental stop losses or real stop losses. But will set them to get out at no more than 3 tick loss. That would then mean 3 ticks at $37.50 removed from $500 will mean I have 462.50 left. How many times would I be able to trade like that?

Perhaps I should explain further. As I am only trading 1 contract per trade. Say I was going for 3 tick profits. On my first trade I made $37.50 then my next several trades I make $37.50 that would bring my total profits to $75. Then my next trade with 1 contract the market falls. I get out at 3 ticks. So I lose $37.50 from my total profits and have $37.50. But what happens if say the market had fallen by 10 ticks, Then I would of lost all $75 which is 6 ticks plus another 4 ticks which is $50 and won't be able to trade another contract as the $500 margin will be worth $450. Will this scenario enable a margin call?

That brings me to my next point and something I have over looked even though I have been training in a simulator. Unfortunately simulators aren't like live trading. I don't know much about margin calls and margin maintenance even though I have read tons on info on them.

A margin call is basically a penalty right? I hear some brokers charge $25. You pay that to them and then need to pay maintenance margin, which is basically funding your account to fill the losses, in this case I would need to fill the account by $50 to bring the contract from $450 back to $500 and if I don't do this by a certain period another margin call (penalty) will occur of $25 and if I still don't offer margin maintenance the broker has a right to liquidate my position as by then the market may of fallen by so much that I could of lost many many ticks. So to make sure that doesn't happen the broker is nice and looks after your account by liquidating your position and then takes their money from your account and offers you back the rest of the amount. Is this how it works, or am I totally confused?

Any help much appreciated

Many thanks in advance

 

[tammyd549]

.... Is this how it works, or am I totally confused?

Any help much appreciated

Many thanks in advance

Dude, you are totally confused.... sorry but, if you can't figure out what a margin is and how it works on your own then you will be just throwing your money away when it comes time to trade real money.

No offense, of course.

 

[sopodo]

Dude, you are totally confused.... sorry but, if you can't figure out what a margin is and how it works on your own then you will be just throwing your money away when it comes time to trade real money.

No offense, of course.

Actually, since I wrote that post. I have done tons more reading and know exactly how initial margin and maintenance margin works. I just got one more thing to ask, with those $500 intraday margins, what figure is the margin maintenance?

 

[JahDave]

Hi pboyles,

I wanted to pull this thread back up rather than making another one.

I am currently after a broker than I can setup an account with that offers $0 minimum accounts. But I am looking to get a standard $500 margin to trade only 1 contract per trade at a time. I might use mental stop losses or real stop losses. But will set them to get out at no more than 3 tick loss. That would then mean 3 ticks at $37.50 removed from $500 will mean I have 462.50 left. How many times would I be able to trade like that?

Perhaps I should explain further. As I am only trading 1 contract per trade. Say I was going for 3 tick profits. On my first trade I made $37.50 then my next several trades I make $37.50 that would bring my total profits to $75. Then my next trade with 1 contract the market falls. I get out at 3 ticks. So I lose $37.50 from my total profits and have $37.50. But what happens if say the market had fallen by 10 ticks, Then I would of lost all $75 which is 6 ticks plus another 4 ticks which is $50 and won't be able to trade another contract as the $500 margin will be worth $450. Will this scenario enable a margin call?

That brings me to my next point and something I have over looked even though I have been training in a simulator. Unfortunately simulators aren't like live trading. I don't know much about margin calls and margin maintenance even though I have read tons on info on them.

A margin call is basically a penalty right? I hear some brokers charge $25. You pay that to them and then need to pay maintenance margin, which is basically funding your account to fill the losses, in this case I would need to fill the account by $50 to bring the contract from $450 back to $500 and if I don't do this by a certain period another margin call (penalty) will occur of $25 and if I still don't offer margin maintenance the broker has a right to liquidate my position as by then the market may of fallen by so much that I could of lost many many ticks. So to make sure that doesn't happen the broker is nice and looks after your account by liquidating your position and then takes their money from your account and offers you back the rest of the amount. Is this how it works, or am I totally confused?

Any help much appreciated

Many thanks in advance

I don't want to berate your system and I really hope you become wildly successful, but if I used a 3 tick loss then I would never be profitable.

Regards,
Dave

 

[sopodo]

I don't want to berate your system and I really hope you become wildly successful, but if I used a 3 tick loss then I would never be profitable.

Regards,
Dave

Hi Dave,

Thanks for the kind words

Can you tell me please what kind of trader are you?

When I say 3 tick stop losses, that's because I would be scalping the market for tiny profits. Isn't that possible to make profits?

 

[JahDave]

Hi Dave,

Thanks for the kind words

Can you tell me please what kind of trader are you?

When I say 3 tick stop losses, that's because I would be scalping the market for tiny profits. Isn't that possible to make profits?

I trade Currency only. You can open a micro account from most Forex brokers with 25 USD. A microlot is ten cents USD per pip. I trade with Forex club from New Jersey and they will not margin call your account unless it reaches zero. There are other forex brokers that will margin call your account if your loss equals your balance in your account times 2.

 

[JahDave]

Hi Dave,

Thanks for the kind words

Can you tell me please what kind of trader are you?

When I say 3 tick stop losses, that's because I would be scalping the market for tiny profits. Isn't that possible to make profits?

Also Forex leverage is 100 to 1, so as long as you trade the right way then the profits are enormous, but if you trade the wrong way then the losses are enormous as well. The way to avoid this in currency trading is to only trade several percent of your account on each trade.

 

[sopodo]

Also Forex leverage is 100 to 1, so as long as you trade the right way then the profits are enormous, but if you trade the wrong way then the losses are enormous as well. The way to avoid this in currency trading is to only trade several percent of your account on each trade.

Many thanks for the reply

I may have to look into this at some point, but for now I would rather stick to the emini futures which I have been training on.

 

[JahDave]

Many thanks for the reply

I may have to look into this at some point, but for now I would rather stick to the emini futures which I have been training on.

I will give you my recommendation for whatever markets you are trading. I trade 95% technical. Learn about Fibonacci, because the market hits these levels on a regular basis. Learn Elliott Wave Theory, and it is not as complicated as people make it out to be. And watch major announcements around the world, because the bottom line is that mass social mood drives the markets and these three things are the best indicators of this.

Good trading,
JahDave

 

[sopodo]

I will give you my recommendation for whatever markets you are trading. I trade 95% technical. Learn about Fibonacci, because the market hits these levels on a regular basis. Learn Elliott Wave Theory, and it is not as complicated as people make it out to be. And watch major announcements around the world, because the bottom line is that mass social mood drives the markets and these three things are the best indicators of this.

Good trading,
JahDave

Thanks for this helpful info. I am currently learning about Fibonacci and been told to read the financial times daily and watch CNN, Bloomberg which I will be doing a lot of I am sure. I will look into this Elliot wave theory as well. Thanks again.

 

[4xpipcounter]

If you don't have the trading experience, then you are about to get hammered. First, take time to develop a methodology for trading, Trade it on a demo account. Afterward, look into a possibility of going live. If you don't, then you will eventually become a statistic, namely the 90% of all traders who bankrupt their accounts.
The others that warned you have also given words of wisdom. The money in this business is wonderful, and that is the lure for a newbie. Don't go for that bait! Take the time that is needed to properly train yourself to be the best trader you can be.
If it takes you a year or more to properly develop the best methodology you can develop for yourself, while making no money, then you will reap the rewards of that labor the rest of your life.
The essence? If you have to ask remedial questions when you are about to jump in a den of lions, then you are about to get eaten. That sounds hard, but it is ruthfully true.

Many thanks for the reply

I may have to look into this at some point, but for now I would rather stick to the emini futures which I have been training on.

 

[JahDave]

Thanks for this helpful info. I am currently learning about Fibonacci and been told to read the financial times daily and watch CNN, Bloomberg which I will be doing a lot of I am sure. I will look into this Elliot wave theory as well. Thanks again.

Also, Please read my friends thread which is "Some of my trade forecasts". His name is Paul and his thread is very good, although he only trades currency as well as me.........

 

[JahDave]

If you don't have the trading experience, then you are about to get hammered. First, take time to develop a methodology for trading, Trade it on a demo account. Afterward, look into a possibility of going live. If you don't, then you will eventually become a statistic, namely the 90% of all traders who bankrupt their accounts.
The others that warned you have also given words of wisdom. The money in this business is wonderful, and that is the lure for a newbie. Don't go for that bait! Take the time that is needed to properly train yourself to be the best trader you can be.
If it takes you a year or more to properly develop the best methodology you can develop for yourself, while making no money, then you will reap the rewards of that labor the rest of your life.
The essence? If you have to ask remedial questions when you are about to jump in a den of lions, then you are about to get eaten. That sounds hard, but it is ruthfully true.

I totally agree with that statement. The big boys will whip you around and take your money from you until you know how to play the game. The good news about this is that they are bigger and slower than you and you can take their money once you know how to play the game.

 

[sopodo]

If you don't have the trading experience, then you are about to get hammered. First, take time to develop a methodology for trading, Trade it on a demo account. Afterward, look into a possibility of going live. If you don't, then you will eventually become a statistic, namely the 90% of all traders who bankrupt their accounts.
The others that warned you have also given words of wisdom. The money in this business is wonderful, and that is the lure for a newbie. Don't go for that bait! Take the time that is needed to properly train yourself to be the best trader you can be.
If it takes you a year or more to properly develop the best methodology you can develop for yourself, while making no money, then you will reap the rewards of that labor the rest of your life.
The essence? If you have to ask remedial questions when you are about to jump in a den of lions, then you are about to get eaten. That sounds hard, but it is ruthfully true.

Many thanks for your reply

I have been training in the emini s&p 500 for a few months now, I have done tons of reading and practice in a trading simulator. I have a system which I created and have tried it out in a simulator and am continuing to practice for a little while longer and then plan to go live. In the mean time I am trying to find a good broker. The good thing is I feel confident that I can trade for a living. But of course I got loads more to learn.