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Hi Kevin:
Thank You for an explanation
that even 'i' can understand..
though i do not usually trade the
grains,imo,your explanation was
understandable to most everyone.
i feel obligated,however,to offer an
'opinion,-those who do so called
daytrading,and have a 'good'
relationship with their broker,-Can,and
Do,
intraday trade many markets with
'substantially reduced' margins-NO,i'm
not going to say Zero,-however the 'good
relationship',mentioned,
involves many factors.
Best Regards,
ruth
Kevin wrote:
>
> > Sorry to mislead you guys about the example of BP and SF. Lets say for almost the same margin
> > requirement of another example, the Wheat and Corn. Both Wheat and corn had almost the same
> > margin use but yesterday's move, Wheat make a bigger move that corn which Wheat falls $8.50
> > compare to corn which is onkt $5 per contract.
> > Therefore when you bet wheat, you get a nicer return when you are correct. Which this is what I
> > mean by maximizing the margin use. Thanks again for all who respond previously.
>
> First off, that's a 8 1/2 cent move in wheat ($425) vs a 5 cent corn
> move ($250). A one day example is rather meaningless.
>
> The performance bond margin requirement is set by the exchange, and is
> derived by a fancy math model which strives to assure the margin
> requirement exceeds the maximum 1 day move in the futures contract. If
> they are correct, there should never be a debit in a futures account.
>
> As a rule of thumb, you can look back over the last 30 trading days (I
> forget what the exact number is) and look at the most extreme net
> change, figure the dollar amount and that is close to the margin
> requirement (kind of like historical volatility). Or to turn it around,
> in your corn example the exchange margin requirement is $540 which means
> they assume the corn contract is not moving more than 10.8 cents per
> day.
>
> The only time you should really get a bigger bang for your margin $, is
> when a market increases in volatility. Since the SPAN program looks back
> at volatility, it will take a couple days before they increase the
> margin requirement. Once they up the margin requirement, all things
> should be equal again.
>
> Bottom line is, there really should not be any way to "Maximize use of
> Margin" over a long period of time. The Margin requirement will go up
> and down with the volatility of the underlying futures contract.
>
> Kevin
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