Margins, Risk & Leverage
Information Crucial to Trading Success
Trading futures and options on futures involves a large degree of leverage. Successful traders must have a strong understanding of how this leverage works, when to apply it and what consequences it may have on your risk. This leverage comes to us in the form of performance bonds; also known as margin requirements.
In order to effectively understand leverage, we must understand margins. Here is an example of how margins work (the process varies slightly depending on the exchange):
- We wish to trade 1 S&P Emini Contract (exchange symbol: ES)
- The ES futures contract is traded at the CME Group on their CME Globex system
- Click on the link to be taken to the Performance Bonds/Margins page of the CME Group website.
- For a list of products and their required margins, please visit the CME Group site linked here and filter for your product. The amount shown in maintenance margin column is the minimum per contract that you will be required to have in your account to hold a position through the close. If this is the first day you are holding the position or you have day-traded that day, you must meet the initial margin requirement instead. The initial margin requirement is 110% of the maintenance margin. For more details, please visit this page on our website.
- Note that intraday margins are different. Intraday margins are set by your broker.
- Intraday margin varies based on our traders’ specific experience levels, trading plans, and needs. For our example, we’ll assume the trader in question has an intraday margin rate of 20% of the initial margin. As of 01/18/2024 the initial exchange margin is $12,980 for every one ES contract. That means that with intraday margin, Stage 5 traders could trade one ES for every $3,245 ($12,980 * 25%) they have in their account. On a $10,000 account, Stage 5 traders could trade up to 3 ES ($10,000 / $3,245) contracts at any one time. The lower the margin, especially intraday margins, the higher the leverage and riskier the trade. Leverage can work for you as well as against you, it magnifies gains as well as losses. Margin rates for CME products can be found by clicking here. For ICE, they are listed here. For Eurex, they can be found here.
- Please review our Risk Control and Margin Call Policy to familiarize yourself with Stage 5’s policy.
