Futures Day Trading Margins: Intraday Margin

Trading margins represent a deposit with the broker to protect both the trader and broker against possible losses on an open trade. With this deposit, day traders are able to trade instruments valued much greater than the margin price via leverage.

For example, the current day trading margin for the E-mini S&P 500 (ES) is $500, and the ES is trading at roughly 2,375 points. With each point in the ES valued at $50, this makes the actual cost for one E-mini S&P contract nearly $119,000!

With the general concept of margin in mind, futures trading margins consists of three margin types:

  • Intraday Margin
  • Initial Margin
  • Maintenance Margin

This article will focus on Intraday Margin while Initial & Maintenance Margins (commonly referred to as Exchange Margins) will be covered in a subsequent post. At a high level, Intraday Margin is the minimum account balance required to enter one contract during trading hours. Initial & Maintenance represent the other half of the margins equation.

Intraday Margin for Futures Day Trading

At its most basic, the Intraday Margin of a product represents the minimum balance an account must maintain per contract while in a trade.

Let’s start by looking at the E-mini S&P 500 (ES) and Crude Oil (CL), two common futures instruments with different margin requirements. The differing margin requirements for the ES and CL primarily stem from the unique characteristics of each instrument. There is generally less liquidity and higher volatility in the CL, so a higher margin requirement is necessary to protect against large moves in the opposite direction of a live position.

  • A $1,000 futures trading account trading the CL would be in debit, or at zero, after a move of 100 ticks (each tick is $10). While uncommon, moves of that magnitude do happen on occasion and can be fast enough that both the trader and a brokerage’s risk management team are unable to liquidate the position.
  • Since the ES is a more liquid market and has more volume, an equally large move of 100 ticks in the ES would generally occur over a longer period of time. Because more contracts would be traded in a 100 tick ES move, traders have greater opportunities to exit a position before an account is driven into debit, thus the day trading margin for the ES is less than the CL.

Intraday Margin Example

To demonstrate how Intraday Margin works, let’s examine a hypothetical account owned by Jane Smith with a $10,000 balance.

Currently, the intraday margin requirement for an ES contract is $500 and the CL is $1,000. As a result, Jane could chose to trade:

  • One contract of the ES using $500 of her $10,000 account balance leaving $9,500 in excess margin
  • One contract of the CL using $1,000 of her $10,000 account balance leaving $9,000 in excess margin

While unadvised, Jane could theoretically trade up to 20 contracts of the ES or 10 contracts of the CL at once based on her account size. Should this occur, Jane would be trading at “Full Leverage” and would violate Intraday Margin requirements if the market moved one tick against her.

A market move in the opposite direction of an open position at Full Leverage would likely trigger a margin call from the brokerage trade desk. Under this circumstance, Jane would have the opportunity to satisfy the margin requirements, and continue to trade, by depositing the necessary funds, or face liquidation from the trade desk. Should liquidation occur, Jane would be responsible for the losses of the trades in addition to a liquidation fee.

Traders should always take note of the different Intraday Margin requirements of the contracts they are trading. Information regarding margin requirements, along with other product specs, are available here.

Stay tuned for additional information from the NinjaTrader Trade Desk about Exchange Margins.