I thought that I would define a few terms that are used in the futures trading industry just as a quick refresher course. Here are some that I think are important to know and to understand when it comes to margin.
Initial Margin, an initial margin is paid by both buyer and seller. It represents the loss on that futures contract, as determined by historical price changes, that is not likely to be exceeded on a usual day’s trading. A futures account is reviewed against the market on a daily basis. If the margin drops below the margin maintenance requirement established by the exchange listing the futures or the brokerage service, a margin call will be issued to bring the account back up to the required level.
Margin-equity Ratio, the margin-equity ration is a term used by speculators, representing the amount of their trading capital that is being held as margin at any one time. Low margin requirements of futures results in a substantial leverage or your investment. The futures exchanges require a minimum amount depending on the contract and the trader.
Return on Margin (ROM),the return on margin is often used to evaluate performance, it represents the gain or loss compared to the exchange’s perceived risk as reflected in required margin.
To prevent a margin call that can seriously affect your capital or devastate you financially, I strongly recommend using a training system before you even do your very first futures trade that models trades and the market. Learning with this type of system protects you from financial failure while you are learning new valuable skills. Once you have successfully traded in practice, then and only then, is it time to move into the “real” market with “real” money. There are huge financial gains to be made by trading in futures, but the risk for failure is also high without the proper background, mindset, and training. Even the most successful traders have made a wrong call or two; money management and knowing when to get out of a market is one of the most important aspects to maintaining your capital at an appropriate level so you can trade another day.
My value to you specifically is the opportunity to watch me trade and to learn under my mentorship before you even spend a dollar on trading futures. I work hard to help my students acquire the confidence needed to be a successful futures trader with hands-on training, personal mentorship, and advanced modeling and profiling tools to help you learn and understand the volatility of the market and what actions to take when the “right” triggers appear. Futures trading can be immensely rewarding both financially and psychologically, but it can be risky too. Learning how to discipline yourself for success is just one of the aspects that I proactively teach in my classes to help minimize margin calls.
About Bill
