Intraday margin - how can it be lower than full margin?

[Sheen]

How can an FCM offer an intraday margin that is lower than that required by the contract specification? Is it a form of a credit line that an FCM gets from its clearing firm? If that is the case, why do they not lower the intraday margins to zero and let their clients use their deposits only to absorb any losses and commission?

 

[Rhody Trader]

Margins are only posted to the clearing house at the end of the day, not intraday. As for lowering the margin to zero, there's no way the brokers expose themselves to that kind of credit risk. What would stop a trader from putting on a crazy big position?

 

[Sheen]

Margins are only posted to the clearing house at the end of the day, not intraday. As for lowering the margin to zero, there's no way the brokers expose themselves to that kind of credit risk. What would stop a trader from putting on a crazy big position?

There could be some position size limits and automatic close out of position when account balance is near zero.I think that is a potential market niche.
After all, is it not how trading arcades operate? OK, they probably still hve to provide margin but it is very low. Is that a business model of arcades?

 

[wackypete2]

There could be some position size limits and automatic close out of position when account balance is near zero.I think that is a potential market niche.
After all, is it not how trading arcades operate? OK, they probably still hve to provide margin but it is very low. Is that a business model of arcades?

A position size limit is effectively a margin. If you had $1000 in your account and your broker tells you there is no margin required but you are limited to 1 unit position size then your effective initial margin for that 1 unit size is $1000.

Peter

 

[numbertea]

If you hold a position overnight a higher margin per contract does take affect with some brokerage houses. Check your contract before assuming one way or the other is your best bet.

Cheers

 

[Eurex]

How can an FCM offer an intraday margin that is lower than that required by the contract specification? Is it a form of a credit line that an FCM gets from its clearing firm? If that is the case, why do they not lower the intraday margins to zero and let their clients use their deposits only to absorb any losses and commission?

Margin determines how many contracts you can open in that particular product based on your account size.

Day Trading margin if you reduce them to zero basically you can open unlimited no of contracts.

Lower Margin and Lower Account Size => More risk to broker.

Some of the brokers give lower day trading margin but restrict your account if it goes below to a certain dollar value and you have to shop somewhere else or fund more money.

Even though there is margin in high volatility contracts during high volatility time such as economic report bids and ask disappear and your stop can get a big slippage making your account -ve and you owning more money to the broker. To protect themselves they will limit the no of contracts you can trade.

For ex lets say
Account size $5000
Day Trade margin $500 for E-mini S&P

Max no of contracts you can trade in theory = $5000/$500 = 10
In real life Max no of contracts you are allowed to trade < 10

For more volatile contracts day trade margin is more.