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that good relationship is called trust :-)
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> From: Ruth Ruby <RuthRuby@xxxxxxx>
> To: klkevin@xxxxxxx
> Cc: omega-list@xxxxxxxxxx
> Subject: Re: FUT: Maximizing use of margin
> Date: Friday, January 09, 1998 10:14 PM
>
> 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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