Futures Margin

When trading futures and commodities, you will hear the term "futures margin" quite often. This is because this is how much money you will need to put up in order to control the futures contract. The rate is set by the exchanges such as the S&P and the CME. When you use a certified financial advisor, he or she will add a little extra money to the minimum rate so that the amount of risk you face is minimized.

Futures margin works similar to trading stocks on margin. However, the margin rate may be much lower than what you see when trading stocks on margin. You really only need to put up a small percentage of the contract margin. You don't want to put up everything since things can change between now and the contract expiration date.

Maintaining the Margin

If you do experience a loss on your futures position, this will result in you needing to put up more money in order to restore the margin to its original level by the time of futures delivery. For example, if you have a contract that is worth $2000 and your maintenance margin is $1400, you will need to have $2,000 set aside because that is the initial margin. So if something happens that your initial margin falls from $2,000 to $1800, you will need to add the $200 to maintain the margin level. This means you have experienced a $200 loss.

But if your initial margin increases to $2500, then you have made a profit of $500. You may see a variety of fluctuations, which is why you want to have enough money set aside in case you see unexpected fluctuations. You need to always be prepared so that you can feed the money in when you need to. If you don't, then you are in violation of the margin maintenance level.

When this violation of the margin maintenance level occurs, a "margin call" is initiated. You will get a call that tells you that you need to add this money to your account. Luckily, you do not have to constantly be watching the account since this will occur because it could occur any time. You can avoid the margin call, however, if you close your positions.

Margin Calculation

The calculation is something that your certified financial advisor can do for you. You should not have to worry about the math involved when calculating the various aspects of futures. They can seem and they can be quite complicated. Don't let this scare you off since you can have someone take care of it for you.

When you have a certified financial advisor take care of your calculations for you, you don't have to worry about making mistakes that could be detrimental to your investment. Many variables are measured in the calculations so that the final and correct figure for the maintenance margin can be determined. What is really taken into consideration is the volatility. You will find that the exchanges make adjustments to the margin requirements based on the condition of the market. This means that it is good to be mindful of recessions and other rapid changes because your margin requirements will be affected.

Luckily, with the help of a certified financial advisor you can trust that you are being put in a good position when you decide to invest in futures. You can learn about futures margin and you can become profitable while you learn so that you can set up a sound future. You may find that you have quite the future in futures, especially when you have the money to make it happen.

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