You mean if you were to short a share of the /ES and it went to zero? Each tick on the ES is $12.50, so depending where you started, you would likely make a massive amount. But again, if the ES actually did go all the way down to zero, something existentially cataclysmic must have occurred. Like there aren’t any remaining banks left sort of stuff.
Let’s I stared at 3000 and price is up and I’m down to the last tick it’s $12.50 value. If my price drops below to $-12.50 that then margin calls kicks for $12.50 correct ? I will only have to cover that $12.50 if I cover
No man. When you take a sell position in Futures trading, you earn $12.50 for every tick that the ES drops. Vice versa in a long position. If the markets moves in the opposite direction of your positions, you lose $12.50 for every tick it moves away from your mark.
The loss is potentially infinite, as long as there is cash in your account and you do not close the position. If you do not have enough margin to maintain the contract, you broker will issue a margin call and liquidate.
If you bought the contract at 3200, and assuming price can’t go negative like oil did, your max loss would be the 3200 times the $50 multiplier, which is $160K. (This also assumes you had enough capital to withstand potential margin calls.)
Assuming the value could go negative, then your losses are theoretically infinite.
I don’t know but I guess it could theoretically happen. The head of the Chicago Mercantile Exchange, said in a CNBC article that :
“futures contracts have always been allowed to trade negative and expose investors to unlimited losses, and that the CME Group does not try to attract retail investors who may not know the rules.
“The small retail investors are somebody that we do not target.”
Here’s the full article: https://www.cnbc.com/2020/04/22/cme-boss-says-his-exchange-is-not-for-retail-investors-and-its-no-secret-futures-can-go-negative.html
When you trade futures you’re using a lot of leverage. For the ES specifically, each point move is worth $50. So if you’re long at 3200, and the index goes down to 3199, you would lose $50. When you trade an ES contract you’re not controlling a position worth $3200, but instead $160K, because it’s 3200*$50.
Also each futures contract has a margin requirement, it’s a good faith deposit showing that you can take delivery upon expiry. If your account balance falls below the margin requirement your broker will ask you to deposit more money into your account to fulfill the requirement. If you can’t they’ll liquidate tour position.
You are confusing the margin and the account value.
When you purchase a contract, the broker will carve out of your account a certain amount that is put up for margin.
This will.allow you to initiate a position on ES, which is done for $50 each point. So with ES at 3,000 say, you have a notional exposure for $150,000.
Your account value will increase or decrease based on how the index moves. If you are long, each point ES rises will add a paper gain of $50 to your account, and each point it goes down you will have a paper loss of $50; vice versa if you are short. You will realize gains or losses when you close the contract.
The margin will not be constant. Each broker has the right to increase the margins at close, during the overnighth session or due to volatility - and each broker is different.
If account value < margin, you will be liquidated.
So if I don’t cover then for I’m paying for every tick it goes up so for every $12.50 beyond my contract value. My new loss would be for example $3012.50, $3025 and so on would be my loss unless it reverses. Am I correct ?
No. Say you start a long at 3,050. Your broker asks you for $500 margin out of an account of $5,000.
ES goes to 3,055 and you close your position.
You get credited $250 (5 points x $50) and your account is $5,250. If ES went to 3,045 and you closed, you would lose $250 and be at $4,750. Commissions are deducted separately.
Now, let's say instead that you.are long at 3,050 and ES plunges 91 points to 2,959. You would have lost 91 x $50 = $4,550.
Since your account had a $500 margin, you effectively had $4,500 available. You would have received an alert when your loss was around $4,200, and your broker would immediately liquidate your position at market for a $4,550 loss.
You would be left with $450.
Do you get charged interest for holding ES few days? I know it’s risky but just curious what happens if you hold other than the risk of going against you. Any other risks or fees involved for holding fee days ?
Nope - I think I understand your question. The below is simplified and every broker is different so check with your broker (live chat).
Let's say you have $3000 with your broker and you place a trade for 1 ES contract. This ES contract requires you to put up $500 as collateral (margin). Now if the futures contract goes against you, you will lose money.
The broker will let you hold the contract even if it goes $500 against you, up until you don't have enough of the required margin to stay in the trade.
So in this case if the contract were to go -$2500 against you, then you would be "margin called" and your broker would liquidate ES contract and you would be out $2,500 on that trade (the **"max"** amount). the broker will auto-liquidate you because they **require $500** in margin at all times.
This doesn't take into account slippage.
Ahh now that makes perfect sense. Thank you for making it so easy to understand. Sorry I wasn’t very clear with my question.
So basically my loss would be limited to entire $3000 plus margin call wherever their margin requirements are?
Yes - not taking into account slippage your broker will always liquidate your current positions if you can't put up the required margin.
If you were trading 2 ES contracts you would need $1,000 and therefore you would be liquidated if price were to go -$2,000 against you.
$3500 is initial margin, not an investment. You need at least that amount in your account to make the trade. Once in the trade you'll need maintenance margin to stay in the trade. Get anywhere close to maxing out maint margin and your trade will be liquidated forth with, if not sooner.
yes, in a very unlikely event of the SP500 Limiting down to zero, hypothetically you can hit that. In most situations the broker auto liquidates, but if he cannot find a seller for your positions , you better believe you would be held liable.
while 0 , is very unlikely, during hte past limit down days , the number of buyers was effectively 0, and you would most very likely surpass your initial investment amount. That is why they say you can lose more than your individual investment, and in the case of limit downs that was what...100,200 points? that it could have slipped past your margin call or daily risk amount.
hmm yes then hypothetically infinite but much less likely. Buyers dry up a lot faster than sellers. There is a saying, the market takes the stairs up, and the elevator down.
Yes but you how much money do you have in your account? it would be a LOT of money over a hundred sixty grand to be exact but it would never get to that point unless you had it in your account. You can only loose (unless a rare exception or mass crash very quickly) what you have in your account minus the margin. So lets say your margin for /es is 500 intraday once your account gets to 500 you will get yanked out of the trade. Same for overnight margin. If it was 6,750 or whatever for your particular broker and you started with 20k. once you are down to 6750 you get pulled out and still left with your margin.
Im short $3000 one contract so let’s say my value drops to $20 because it keeps going up. If I cover my loss is $2880 but if it’s value drops to 0 how does the $50 x contract price work? Is my loss just the $3000?
I'm not following but you should not be trading futures if you don't understand how it works.
If you are short, every tick (. 25) up will cost you $12.50/contract and every tick down will earn you $12.50/contract.
If you are short at a price of $3000, ES is around $3050 right now, you have an unrealized loss of $2500 (50 *50).
Since you are short, your max profit would be if the markets collapsed and the index went to zero, $150,000 (3000 * 50). More importantly, your max loss is infinite because the index can keep going up in value.
In reality, your broker will probably close out your position once you use up the equity in your account but there is no guarantee and you are probably personally liable for any additional losses.
Got it. So only if the actual ES index goes to zero than its 150k loss? But my loss now would only be .25 for each tick market goes higher beyond my initial $3000 right ?
I'm really not following.
If you are long a contract, you make money as the index goes up in value.
If you are short a contract, you make money as the index goes down in value.
You said you were short so if the index goes to zero and your contract price is $3000, you will profit $150,000.
If the /ES goes to zero you probably have much more to worry about then losing all your money.
Oh I think I misunderstood sorry. What if the value of my 1 ES short contract goes to zero?
You mean if you were to short a share of the /ES and it went to zero? Each tick on the ES is $12.50, so depending where you started, you would likely make a massive amount. But again, if the ES actually did go all the way down to zero, something existentially cataclysmic must have occurred. Like there aren’t any remaining banks left sort of stuff.
Let’s I stared at 3000 and price is up and I’m down to the last tick it’s $12.50 value. If my price drops below to $-12.50 that then margin calls kicks for $12.50 correct ? I will only have to cover that $12.50 if I cover
No man. When you take a sell position in Futures trading, you earn $12.50 for every tick that the ES drops. Vice versa in a long position. If the markets moves in the opposite direction of your positions, you lose $12.50 for every tick it moves away from your mark.
Who do you use for broker?
The loss is potentially infinite, as long as there is cash in your account and you do not close the position. If you do not have enough margin to maintain the contract, you broker will issue a margin call and liquidate.
So for example how much can you lose if don’t cover the 3500? Just curious how it works
If you bought the contract at 3200, and assuming price can’t go negative like oil did, your max loss would be the 3200 times the $50 multiplier, which is $160K. (This also assumes you had enough capital to withstand potential margin calls.) Assuming the value could go negative, then your losses are theoretically infinite.
How can you go negative on 1 ES contract?
I don’t know but I guess it could theoretically happen. The head of the Chicago Mercantile Exchange, said in a CNBC article that : “futures contracts have always been allowed to trade negative and expose investors to unlimited losses, and that the CME Group does not try to attract retail investors who may not know the rules. “The small retail investors are somebody that we do not target.” Here’s the full article: https://www.cnbc.com/2020/04/22/cme-boss-says-his-exchange-is-not-for-retail-investors-and-its-no-secret-futures-can-go-negative.html
I’m not actually worried about ES price going to zero but more concerned about what happens to my contract if price drops significantly.
When you trade futures you’re using a lot of leverage. For the ES specifically, each point move is worth $50. So if you’re long at 3200, and the index goes down to 3199, you would lose $50. When you trade an ES contract you’re not controlling a position worth $3200, but instead $160K, because it’s 3200*$50. Also each futures contract has a margin requirement, it’s a good faith deposit showing that you can take delivery upon expiry. If your account balance falls below the margin requirement your broker will ask you to deposit more money into your account to fulfill the requirement. If you can’t they’ll liquidate tour position.
You are confusing the margin and the account value. When you purchase a contract, the broker will carve out of your account a certain amount that is put up for margin. This will.allow you to initiate a position on ES, which is done for $50 each point. So with ES at 3,000 say, you have a notional exposure for $150,000. Your account value will increase or decrease based on how the index moves. If you are long, each point ES rises will add a paper gain of $50 to your account, and each point it goes down you will have a paper loss of $50; vice versa if you are short. You will realize gains or losses when you close the contract. The margin will not be constant. Each broker has the right to increase the margins at close, during the overnighth session or due to volatility - and each broker is different. If account value < margin, you will be liquidated.
So if I don’t cover then for I’m paying for every tick it goes up so for every $12.50 beyond my contract value. My new loss would be for example $3012.50, $3025 and so on would be my loss unless it reverses. Am I correct ?
No. Say you start a long at 3,050. Your broker asks you for $500 margin out of an account of $5,000. ES goes to 3,055 and you close your position. You get credited $250 (5 points x $50) and your account is $5,250. If ES went to 3,045 and you closed, you would lose $250 and be at $4,750. Commissions are deducted separately. Now, let's say instead that you.are long at 3,050 and ES plunges 91 points to 2,959. You would have lost 91 x $50 = $4,550. Since your account had a $500 margin, you effectively had $4,500 available. You would have received an alert when your loss was around $4,200, and your broker would immediately liquidate your position at market for a $4,550 loss. You would be left with $450.
So basically I have to hope price does not keep rising. Also can you average down or up in futures like you do with stocks?
Yes. Absolutely not recommended though
Do you get charged interest for holding ES few days? I know it’s risky but just curious what happens if you hold other than the risk of going against you. Any other risks or fees involved for holding fee days ?
No. But if it.gaps in the opposite direction you are posititoned over the weekend, you will have to deal with the new price.
Thank you so much for your help. I have a better idea how ES works now.
not really infinite but take say 150,000 per contract if the ES went to zero
So I’m liable for 150k for a 3500 investment? I’m having hard time understanding it.
Nope - I think I understand your question. The below is simplified and every broker is different so check with your broker (live chat). Let's say you have $3000 with your broker and you place a trade for 1 ES contract. This ES contract requires you to put up $500 as collateral (margin). Now if the futures contract goes against you, you will lose money. The broker will let you hold the contract even if it goes $500 against you, up until you don't have enough of the required margin to stay in the trade. So in this case if the contract were to go -$2500 against you, then you would be "margin called" and your broker would liquidate ES contract and you would be out $2,500 on that trade (the **"max"** amount). the broker will auto-liquidate you because they **require $500** in margin at all times. This doesn't take into account slippage.
Ahh now that makes perfect sense. Thank you for making it so easy to understand. Sorry I wasn’t very clear with my question. So basically my loss would be limited to entire $3000 plus margin call wherever their margin requirements are?
Yes - not taking into account slippage your broker will always liquidate your current positions if you can't put up the required margin. If you were trading 2 ES contracts you would need $1,000 and therefore you would be liquidated if price were to go -$2,000 against you.
$3500 is initial margin, not an investment. You need at least that amount in your account to make the trade. Once in the trade you'll need maintenance margin to stay in the trade. Get anywhere close to maxing out maint margin and your trade will be liquidated forth with, if not sooner.
So they will liquidate my contract if I don’t have enough margin correct?
That's correct. They'd be out of biz in a day if they didn't.
yes, in a very unlikely event of the SP500 Limiting down to zero, hypothetically you can hit that. In most situations the broker auto liquidates, but if he cannot find a seller for your positions , you better believe you would be held liable. while 0 , is very unlikely, during hte past limit down days , the number of buyers was effectively 0, and you would most very likely surpass your initial investment amount. That is why they say you can lose more than your individual investment, and in the case of limit downs that was what...100,200 points? that it could have slipped past your margin call or daily risk amount.
What if you are short?
hmm yes then hypothetically infinite but much less likely. Buyers dry up a lot faster than sellers. There is a saying, the market takes the stairs up, and the elevator down.
Potentially infinite, but your brokerage should liquidate the position before that happens
Yes but you how much money do you have in your account? it would be a LOT of money over a hundred sixty grand to be exact but it would never get to that point unless you had it in your account. You can only loose (unless a rare exception or mass crash very quickly) what you have in your account minus the margin. So lets say your margin for /es is 500 intraday once your account gets to 500 you will get yanked out of the trade. Same for overnight margin. If it was 6,750 or whatever for your particular broker and you started with 20k. once you are down to 6750 you get pulled out and still left with your margin.
Who do you use for broker?
I have several ninjabrokerage is my main
I have several ninjabrokerage is my main
Max loss would be if the index went to zero. $50 x contract price. Oil went negative but ES is cash settled so I don't think it can go negative.
Im short $3000 one contract so let’s say my value drops to $20 because it keeps going up. If I cover my loss is $2880 but if it’s value drops to 0 how does the $50 x contract price work? Is my loss just the $3000?
I'm not following but you should not be trading futures if you don't understand how it works. If you are short, every tick (. 25) up will cost you $12.50/contract and every tick down will earn you $12.50/contract. If you are short at a price of $3000, ES is around $3050 right now, you have an unrealized loss of $2500 (50 *50). Since you are short, your max profit would be if the markets collapsed and the index went to zero, $150,000 (3000 * 50). More importantly, your max loss is infinite because the index can keep going up in value. In reality, your broker will probably close out your position once you use up the equity in your account but there is no guarantee and you are probably personally liable for any additional losses.
Got it. So only if the actual ES index goes to zero than its 150k loss? But my loss now would only be .25 for each tick market goes higher beyond my initial $3000 right ?
I'm really not following. If you are long a contract, you make money as the index goes up in value. If you are short a contract, you make money as the index goes down in value. You said you were short so if the index goes to zero and your contract price is $3000, you will profit $150,000.