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Both.
Margins are first set according to the notional value of the contract
traded. Typicaly margins are set to equal around 7% of the notional value
of the contract.
For example, the EMini SP is priced at 1162. 1162 x $50 p. point equals a
notional value of the contract of $58,100. 58,100 x 7% = $4,067. Currently
the margin minimum for an ES (Emini SP) is about $4000 - right in line with
above contract.
Volatility also plays a role. margins take this figure into account
determining how much a contract has moved peak to trough - the largest move.
If the percentage currently used produces a dollar figure that is ;lower
than the maximum move figure - they can certainly expand the margin
requirement. In fact, exchanges reserve the right to move margins on an
intraday basis. Whether they exercise this right is rarely used.
Taking volatility into account - look at the emini Nasdaq.
The notional value of the contract is $34,000. 7% x $34,000 is $2380. The
current margin requirement for that is more than 2 x that level due to
intraday volatility and the history of the contract in terms of volatility.
The opposite example would be the US 30 Year Treasury bond contract. The
notional value of the contract equals $100,000. 7% of that would equal
$7000. Because the contract is not nearly as volatile as the Nasdaq or S&P
based on intraday swings - the margin is set to about $2,000 - the
equivalent move of 2 points in intraday trading.
Bottomline, there no sense in trying to figure out how margins are
calculated by the exchanges to an exact science. They ca change and do
change based upon intraday volatility (peak to trough) and notional value of
the contract you are controlling. Using the simple rule of thumb around 7% -
figure unless a contract is very volatile or not at all - that figure should
up pretty close.
Use a good online broker that has margin rates updated and posted on their
trading platform daily for clients to see and more importantly, an
experienced broker that will have a communication line open to you to
communicate any drastic changes in margin to you in a timely manner. This
will allow you to trade your account and leave the operational stuff to the
people you pay your commission to.
Best wishes,
Mike
ViperTrading, LLC.
www.vipertrading.com
----- Original Message -----
From: "David Folster" <mr_bond@xxxxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Wednesday, December 05, 2001 8:53 AM
Subject: margins
> Please pardon my ignorance:
>
> Are margins set according to volatility or current price levels?
>
> Thanks
>
> David
>
>
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