Some Advice for Newbies

[Head2k 10]

You could be right, but I find it too hard to believe that any broker would take on the risk of initial margin requirements on behalf of their client. If my broker did that I would trade with another broker because they will become insolvent in no time. My broker has a $500 day trading margin but I cannot open a contract unless I have the minimum initial margin set by the exchange- $5650.

 

From the I.B Website:

 

 

 

Performance Bond/Margin Rates

 

The CME which is the exchange that the ES is listed on quotes an initial margin of $5,625

 

The CME may have an 'Intra-day' margin of $2813 but I can't find it on their site even though I.B lists it. However, it is clear even from I.B that it is the Exchange which sets the Initial Margin.

 

As I wrote before, IB are conservative. AFAIK, they do not offer lower margins than the exchange. But check e.g. Mirius:

Day-Trading Margins | Mirus Futures

[estrader 10]

I am pretty sure they have controls in place to try to close you out so that they do not begin to risk their own capital. They make you responsible for your losses, but they ultimately answer to the clearing firm. Brokers do take losses.

 

There is a big difference between taking a loss and putting up potentially hundreds of thousands of dollars or even $Millions of your own capital every single day as margin for your clients. I can understand a $500 day trading margin because that gives approx $5100 headroom from the initial margin for unexpected volatility. What I can't understand is an Intraday Initial Margin of $2813. Why have two different 'Initial Margins' anyway? This means that if you are a swing trader you can be more aggressive/risky if you open your trades during the day even if you intend holding for more than one day? Doesn't make sense to me.

Edited December 19, 2010 by estrader

[estrader 10]

As I wrote before, IB are conservative. AFAIK, they do not offer lower margins than the exchange. But check e.g. Mirius:

Day-Trading Margins | Mirus Futures

 

I repeat: My broker gives me a $500 DAY TRADING MARGIN. This is different to the initial margin set by the exchange.

[estrader 10]

Before anyone else posts their opinion, make sure you know the difference between a Day Trading margin an Initial Margin and Maintenance Margin.

[Head2k 10]

Well, OK then. The $2813 Initial Intraday Margin for the ES is the same as day trading margin, as there is the word "Intraday".

[estrader 10]

Well, OK then. The $2813 Initial Intraday Margin for the ES is the same as day trading margin, as there is the word "Intraday".

 

OK, so basically we are none the wiser after half a dozen posts. Brokers set their own day trading margins and the exchange sets the initial margin that ALL brokers must abide by. Therefore, it is impossible to open more than one contract with only $10K in the account.

[Head2k 10]

Therefore, it is impossible to open more than one contract with only $10K in the account.

...unless you are a day trader. You definitely can open a larger position, but you have to close it within the same session.

[estrader 10]

...unless you are a day trader. You definitely can open a larger position, but you have to close it within the same session.

 

I will contact CME group myself and find out if this is fact or opinion because it is something I've never heard before. I can't find anything in the contract specs which specify two different initial margins.

 

Do you trade more than one contract intra-day and do you have less than $10K in your account?

[Head2k 10]

Do you trade more than one contract intra-day and do you have less than $10K in your account?

Even though I am a daytrader, my own risk management rules are more conservative than the overnight margin requirements set by the exchange. I have never attempted to open a position which would be more leveraged than the marging requirements, or even anywhere near to them.

[estrader 10]

my own risk management rules are more conservative than the overnight margin requirements set by the exchange. I have never attempted to open a position which would be more leveraged than the marging requirements, or even anywhere near to them.

 

Exactly, this says it all. You know the risks but I'm expected to believe that futures brokers would completely ignore the risks and arbitrarily set their own margins that are below the ones set by the exchange..c'mon!!

[ochie 10]

Well, OK then. The $2813 Initial Intraday Margin for the ES is the same as day trading margin, as there is the word "Intraday".

 

Yep. And the IB 'Overnight Initial' is the margin set by the exchange which for ES is currerntly $5625. IB in the past will flip this value over to the "Intraday Initial' under certain market conditions.

[estrader 10]

Yep. And the IB 'Overnight Initial' is the margin set by the exchange which for ES is currerntly $5625. IB in the past will flip this value over to the "Intraday Initial' under certain volatle conditions.

 

Explain how this works in practical terms, from the perspective of a trader who wants to open a position. CME does not specifiy two different Initial Margins.

 

Actually forget answering my question. After reading what you wrote again it's clear you must be confused. Why would IB flip this value over to the "Intraday Initial' under certain volatile conditions? Margins go UP under volatile conditions not down.

Edited December 19, 2010 by estrader

[ochie 10]

After reading what you wrote again it's clear you must be confused. Why would IB flip this value over to the "Intraday Initial' under certain volatile conditions? Margins go UP under volatile conditions not down.

 

 

Under certain volatile conditions IB has in the past moved the Overnight Initial Margin (which is higher) to the Intraday Initial Margin (which is lower). The Margin went up. Maybe “flip” wasn’t the best word to use but not confused.

[estrader 10]

Under certain volatile conditions IB has in the past moved the Overnight Initial Margin (which is higher) to the Intraday Initial Margin (which is lower). The Margin went up. Maybe “flip” wasn’t the best word to use but not confused.

 

Ok. Imagine you work in IB Customer service; I call you up and ask the following:

 

I would like to trade the ES contract but I’m a little confused by your Initial Margins. The CME specifies $5625- but you have two different initial margins, an intraday initial margin of $2813 and an overnight initial margin of $5625.

 

How can your initial intraday margin be lower than the one mandated by the CME?

 

Does this mean I can open 1 position with only $3000 in my account? If so, what hours of trading does the ‘Intraday margin’ apply to and how low will you allow the balance of my account go before closing out my position?

 

Now, answer these questions in a way that a new trader would understand....please

[Kiwi 16]

ES you seem to be confusing a lot of different things. Many of them could be resolved by carefully reading IB's material and the information they provide.

 

For example they have two initial margins. The difference is simply based on the time of day that you take the trade.

 

If you open a trade during the US day then the initial margin is 2813.

If you open outside of rth the initial margin is 5625.

Once you have a position then you no longer have to be concerned about initial margin figures. You simply need to cover the maintenance margin for the time of day that IB's computers are examining your liquidity.

 

If you fall below their liquidity requirements (sum of the maintenance margins drops under account value) then they will start dumping your positions with remarkable rapidity.

 

 

Next: swing vs day. You only need the margin to cover you at the current time. If you are foolish enough to start swing trades with total margin close to your account value during the day then you will get an unpleasant surprise during the evening when IB sort out your misunderstanding by reducing your risk automatically. IB is for big boys so if you screw up then you suck it up.

 

Next: the brokers will go bankrupt if they let you trade lots of ES contracts. Some might. But IB won't for two reasons: a) they aggressively and automatically liquidate positions when you fall below requirements something that does cause a lot of whinging from newbies but not from professionals; b) the law of big numbers: not all of their customers are holding positions in the same directions and thus they get a little room to move even in a catastrophic crash for large numbers of their customers.

 

Next: IB uses the exchanges margins. Well, to an extent. But not always and necessarily. I still recall the screams when they assessed risk to be higher than the exchanges views and raised margins. I was happy because I knew it meant they were sensibly managing the brokerage's risk (see last Next).

 

 

"he Federal Reserve Board and self-regulatory organizations (SROs), such as the New York Stock Exchange and FINRA, have clear rules regarding margin trading. In the United States, the Fed's Regulation T allows investors to borrow up to 50 percent of the price of the securities to be purchased on margin. The percentage of the purchase price of securities that an investor must pay for is called the initial margin. To buy securities on margin, the investor must first deposit enough cash or eligible securities with a broker to meet the initial margin requirement for that purchase.

 

Once an investor has started buying a stock on margin, the NYSE and FINRA require that a minimum amount of equity be maintained in the investor's margin account. These rules require investors to have at least 25 percent of the total market value of the securities they own in their margin account. This is called the maintenance margin. For market participants identified as pattern day traders, the maintenance margin requirement is $25,000."

 

for more info seach for "margin" at that best of brokers

[estrader 10]

ES you seem to be confusing a lot of different things.

 

I wasn't confusing anything................. I called I.B and got the answer

Moderated Message:

Removed some text - prior poster was trying to help and spent a lot of time trying

[jajuanm2 10]

Johny, very good info!!!! The problem is that trading can't be taught it can only be experienced. It will take newbies 4-5 years of frustration before they understand and accept the information that you have given them. Not sure why it works that way but it does.

[jackb 10]

OK, so basically we are none the wiser after half a dozen posts. Brokers set their own day trading margins and the exchange sets the initial margin that ALL brokers must abide by. Therefore, it is impossible to open more than one contract with only $10K in the account.

 

It's absolutely possible and I do it all the time with multiple (3) different brokers. If all you had was $1000 in your account and you place an ES order for 2 contracts, you will be filled on both (again, if you broker offers $500 intraday margins). The exchange recommended margins are not adhered to by these brokers. On a side note, if you (any trader) do not have more than one broker, it is advisable to incorporate that into your business plan to mitigate issues related to broker-specific system problems.

[phantom 16]

DAMMMMM.

 

6 pages of banter and not a single word of good advice.

 

Any newbie should flee from this thread ASAP!!!

 

 

No wonder 95% of traders fail...LACK OF FOCUS!

[radtek327 10]

Hello, I am a newbie trader. I learned a hard lesson starting out of the importance of a stop loss. I'm now using a trailing stop and it's been working for me. I guess I'm considered a "scalper" since I look for runs and try and just take a chunk out of the middle. This is the way I was taught.

Here it is, middle of August and the volotility is just crazy with what's going on. I'm having trouble figuring out where to set my stop loss, to limit my losses, but staying in the trade without getting picked off.

Any advice for a newbie?

[oatman 10]

Look I am new here to the forums and based on all the bantering it appears that you guys are arguing about the commission of futures vs profit. You see, the main issue toward what I am seeing here is that you guys are only trading 1 contract at a time. That makes NO SENSE in the flippin' world. When I am on NinjaTrader and I look at the Time and Sales Window, nearly 80% of all the trades are 1 contract trades. Lets use AMPFutures or TDAmeritrade as your broker, TD charges $4.50/round trip... Now if one contract of say the 6E(Euro) market costs 12.5 dollars per tick and you have to leverage $500 dollars, it would make no sense in the world to operate on one contract. ((12.5 X 1) * 2(TICK PROFIT))-4.5(commission) = 20.5 dollars... Most people on here seem to be making about 1 tick and scalping the market. So in that case they'd make about $8 every successful tick.

 

Now heres where the advise comes into play, if you guys have an account with say... 10K in it and one contract uses about $500 worth of margin/contract... Then why not leverage 5 CONTRACTS, which is about $2,500 of an investment where in the worse case you lose $62.50 per tick. Since TD or AMP charges a $4.50 charge ROUND TRIP then you are not even hurting your profits what so ever... Not to mention if you were experienced and NOT scalping the trades you can make over 16 ticks per trade... That is some serious money.

 

It looks to me that the two main issues here is this...

1) People are only trading with 1 contract... But they will trade 4 times a day... that means they get hit at a $4.50 commission every time... WHY NOT just do 4 contracts ALL IN ONE TRADE then.

2) People are having just as many loses as wins, well with commission that isn't going to work.

 

Look I'll share how I do... and yes I live with what I am preaching here... I trade 5 contracts PER TRADE at a $4.50 round trip. I win about 80% of all the trades I partake in. (INDICATORS, WILL GET YOU THESE FIGURES)

I also average about 5 ticks per trade... and I'll make about 12 trades a day.

 

MATH TIME!!!

5 Contracts * 12.5 = 62.50

62.5 * 5 ticks (avg) = 312.50

312.50 * 12 trades per day = 3750

3750 * 20% loss streak = $3000

12 trades * 4.5 Comm = $54

$3000 - $54 = $2946

 

AVG DAILY TOTAL: $2946, off a $2,500 margin... Thats over 110% return a day.

 

RECAP:

*Trade with more contracts, MORE contracts equals less commission.

*Play in the simulator, learn to get 80% of the trades, you want to achieve an average of 5 ticks per trade at 5 contracts.

*GET YOURSELF SOME INDICATORS (I USE TONS, but at least get your EMA 15, SMA 20, SMA 50, SMA100, SMA200.... ALSO find PIVOT resistence lines... and some fractals.

 

If anyone wants to argue with me and rebuke what I just stated, I'd be glad to explain in further detail.

 

Look scalping is speculation, and speculating is the same as being a greedy and fat like a pig, and PIGS they get slaughtered.

Edited August 12, 2011 by oatman

[oatman 10]

Yep. And the IB 'Overnight Initial' is the margin set by the exchange which for ES is currerntly $5625. IB in the past will flip this value over to the "Intraday Initial' under certain market conditions.

 

Not entirely correct, it all depends on your broker... Mine AmpFutures, requires $500 worth of margin per contract... ALSO anybody who holds futures overnight is CRAZY, futures were not MADE to be held onto with the amount of leverage you are using. I dont even believe the institutions or hedge fund companies will dare to hold a future over night... Well... unless you wanna go back in the day when people traded physical commodities. I have my futures for a minimum of 2 seconds and a maximum of 60 seconds.

 

Intraday margin = Margin for intraday trading only. This margin is set by Variance Futures and your Futures Commission Merchant.

Overnight margin = Holding positions into the close or for several days at a time and is set by the exchange of the products you are trading, however in such instances Variance Futures and your FCM may require margins greater than exchange minimum margins.

Edited August 12, 2011 by oatman

[steve46 12]

I trade professionally and am training a small class right now (we have just begun our third month of classes)

 

I screened folks carefully in order to obtain candidates who were "adults" and could in fact "focus" and show me some discipline....To me this was the most important starting point.

 

We all trade approximately the same size accounts (I made sure that my account was about the same size as my students), we enter trades together and scale out together...and when we are done with the day's work I publish a "recap" that goes over the trades and shows the student how to improve, or if they did well I simply congratulate them (as I have done for the last several weeks)...As of now all but one student are profitable...

 

We have worked hard, and we have been lucky, and that combination is hard to beat..We begin prior to the open and we plan our first two trades. We have a proven risk management protocol and we stick to it....and most importantly we know when to stand aside...Because the first few months of training are important, we are only taking high probability entries...

 

As we move forward and people continue to demonstrate that they have what it takes to be consistent, we will change our focus from simply building a track record to running a sustainable business....in other words, we will look at subjects other than trading including recordkeeping, taxes, equipement and vendor choices, lifestyle choices and other things that relate to the trader's success.

 

At the end of the course (a little over a year from now) each student will be asked to leave the class and trade on their own, however they will be expected to produce a record of their trading activity for analysis. If they need help at this point, I will provide it....whatever it takes to make sure these folks (who I have come to consider my friends) make it in this business...

 

The class is closed (unless someone drops out or takes a leave due to illness) so there is no solicitation here...Just wanted to show what it takes to really do this job right....

 

I have authored some threads that may help newbies...just look in the Emini Futures Laboratory Forum....or send me a pm and I will respond when I have time...

 

Good luck everyone.

Steve

Edited August 12, 2011 by steve46