Jordan Schleider and NQ Trader on Margins

Jordan Schleider and NQ Trader on Margins
This is a short article on margin requirement for trading futures by Jordan Schleider founder of NQ Trader. Jordan Schleider is the head trader and an expert at scalping the e-mini’s. He has over 30 years of trading and investing experience in many different financial markets.
For the purpose of this example, let’s assume the intraday margin required is $500 per contract traded. This is standard with many futures instruments today. If you want to trade during the day, you are required to have enough money in your account to at least cover the intraday margin and commissions. It is sort of like a security deposit plus some cushion that the brokerage requires.
Let’s say you have $600 in an account and your margin requirements are $500. You will be able to trade 1 futures contract. In this example your maximum risk exposure would be about $100. As soon as you hit the buy or sell button the broker puts an electronic $500 hold on the money you have in your account and you will have a $100 available balance. This amount will be called your excess liquidity. Next the broker will deduct the one way commission or cost per turn which can vary, but the average is about $2. This amount is deducted from the available balance or excess liquidity so your new balance would be $98 plus the $500 on hold.
If the trade goes in your favor by $30, your available balance will move up to $128. When you close the trade you get charged another $2 commission, so your balance is now $126, then the security/margin is released, and your balance goes to $626.
Take the same example with the trade going against you. If you lose $30 on the trade your available liquidity would drop from $98 to $68. When you close the trade you get charged another $2 commission, so your balance is now $66, then the security/margin is released, and your balance goes to up to $566. Your maximum risk exposure would still only be about $100 or the amount you have in your account over the minimum margin requirements.
This maximum exposure can occur if you do not close the trade on your own or you run out of liquidity which in our example is $100. In this case an automatic margin call will take place and close the trade for you when your account drops to the $100 threshold. The margin call will initiate at the depletion of your excess liquidity and another $2 commission will be deducted from your available $500 margin before it is released. Now your account balance is $498. Your maximum risk and loss was $102. There is a possibility that your broker will charge you for the margin call. This is usually a small fee and there could also be a broker assisted trade fee.
You will always have the margin amount left in your account minus any fees. So in summary, the margin is like a refundable security deposit. You would always need a few more dollars than the margin requirements to trade, that’s why I started the example with $600.
Thanks for taking the time to read my article. If you want to contact me at NQ Trader my name again is Jordan Schleider and my email is Jordan@nqtrader.us.

Margin Tick Value and Leverage Futures Trading Tips

Margin Tick Value and Leverage

Jordan Schleider founder and head trader at NQ Trader

I am here to tell you a little about futures trading. So you want to get involved in futures trading but you do not know how or where to start. Sound familiar?

Let’s say you think the e-mini’s markets are a good choice, one that could last for months. Let’s also assume you like the NQ market better than all the other e-mini markets. You think there is real potential in the NQ because of the world wide Tech demand. Not only do you like the fundamentals, but you also like the technical trend.

You look at the charts and it is in a bullish up trend. All the moving averages are trending up, and your momentum indicators are all bullish. The example I am using is for the NQ market, but you could have a bullish or bearish opinion in Crude Oil, Gold, US 10 Year Note, S&P 500, Soybeans, Cattle, Sugar, the US Dollar or any other futures market for that matter. You can use the following exercise as a guide to make your first trade in any commodity futures market.

Tick Values

A futures contract of the NQ is worth 20 shares and it moves in 25 cent increments. Let’s say the NQ is trading at $5,500/share and moves up 25 cents to $5,500.25 /share. The NQ went up 25 cents, but it went up 25 cents for 20 shares in the futures contract. The 25 cent gain needs to be multiplied by 20 shares.

$0.25 X 20 shares = $5.00

25 cents in the NQ equals $5

So the next time you see on CNBC, Bloomberg, the Wall Street Journal, or any other financial news organization that the NQ is up $40.25 for the day, you will know to multiply it by $5 to get the monetary move in the standard futures contract.

$40.25 / .25 = 161 ticks X $5 per tick = $805 per contract.

 

 

Total Futures Contract Value

Now that you know the dollar amount for price changes, the next thing you need to know is what these futures contracts are worth as a whole. In order to figure that out, we need to know the total value of the futures contract.

If the NQ is trading at $5,500/per share and a contract of the NQ is for 20 shares, to find the total contract value, we need to multiply the price per share by the number of shares in the contract. In this case we need to multiply price ($5,500.00/share) by the contract multiple (20 shares of the NQ)

$5,500 X 20 shares = $110,000

That means one standard contract of the NQ trading at $5,500 is a $110,000 futures contract.

Does this mean you need $110,000 in your account to trade the NQ futures contract? Absolutely not. Commodity futures are traded on margin, where you only need a percentage of the total contract value to hold a position. We will dive into this further in the next section.

Futures Margins

Margin is the minimum amount of available funds you need in your account to hold a futures position. Each market will have a different margin requirement. Margins are determined by the exchanges. The margin for the standard 20 shares of NQ contract for overnight trading is around is $5000 and the intraday margin for day trading is $500. Margin is not the recommended amount of capital you need for a position. Margin is just the minimum amount of capital the exchange and clearing firms want traders to have in their accounts.

Leverage

Leverage and margin are similar but separate subjects. Margin is the minimum amount of capital you need to hold a position. Leverage is the ability use a specific amount of capital in order to control a much larger asset in terms of valuation.

The most prominent example for the use of leverage is when a person buys a house; they are using leverage by taking out a mortgage. Let’s say you want to buy a house and the price is $200,000. The bank wants you to put down 10%, which is $20,000. The other 90%, or $180,000, is mortgaged. The note covers the first $180,000 of the house and the home owner has equity of $20,000.

As the price of the house increases, the gains made go to the home owner. If the house increases in value by 10% ($20,000) to $220,000, the mortgage is still $180,000, but the homeowner’s equity is now $40,000. The homeowner has a 100% return on his investment and the price of the house only had to go up 10%.

Leverage can be a double edged sword. Let’s say the price of the home decreases by 5%, or $10,000. That means the price of the home is only worth $190,000. The mortgage is still $180,000. However, the home owner’s equity in now $10,000, down from $20,000, which is a decrease by 50%. The price of the home only had to decrease by 5% for the home owner to have a loss of 50% in their equity.

You can take the same concept of leverage with respect to buying real estate and apply it to trading futures. Let’s say you have a $10,000 futures account. You are long soybeans at $6.00/bushel. The total contract value is $6 X 5000 bushels = $30,000.

If soybeans goes up 20 cents from $6.00 to $6.20 per bushel, the trader is up $0.20 in soybeans, or $1000 ($0.20 X 5000 bushels). The price of soybeans went up about 3% but the trader’s equity increased 10% (from $10,000 to $11,000). If soybeans goes down ten cents ($0.10) from $6.00 to $5.90 per bushel, the trader is down $0.10 in soybeans, or $500. While the price of soybeans is down almost 2%, the trader’s equity is down 5% percent (from $10,000 to $9,500).

Just like how a homeowner can choose their leverage by using a 5%, 10%, 20% or even 50% down payment on a home, so too can the futures trader. A futures trader with a $10,000 account can be long 1 futures contract, controlling $30,000 of soybeans, they can be long 2 futures contracts, controlling $60,000 of soybeans, and to use a very aggressive example, they could even be long 4 contracts of soybeans controlling $120,000 worth of soybeans (4 contracts X $2025 margin = $8100 of required margin for the sample $10,000 account).

For more information and tips come visit us at NQ Trader

 

Jordan Schleider
754-800-1810
NQ Trader

 

 

6 Things You should Know About Trading With a System

What is a trading system?

What is Trading System?
A trading system is a tool used by traders that uses objective entry and exit criteria based on parameters that have been determined by historical testing on quantifiable data. Advanced Systems are run on computers or servers and linked to an exchange for trading. Developers will send systems revisions (updates) as they see fit. Basic systems can be developed by individual traders with basic knowledge of statistical analysis and good observation skills. While developing your own system takes patience it is not difficult if you have a little time. A basic system could start out as easy as going long after a strong closing candle or going short after a weak closing candle. The next step would be to add targets and stop loses for these two trades. The final step would be developing addition rules or criteria that may stop you from taking specific trades based on these criteria.

Why should I trade a system?
Trading the futures markets using a trading system provides the discipline to overcome the fear and greed that in many cases paralyzes a trader and prevent making timely decisions. Each order placed is governed by a pre-determined set of rules that does not deviate based on anything other than market action. The most difficult and most overlooked aspect of trading, emotions are where most traders fall short and make expensive mistakes. These mistakes can be overcome simply by following your proven system without fail.

What should I consider?
Like all kinds of tools, trading systems if not used properly, can be dangerous to the trader’s economic health. The trader should evaluate tolerance to high-risk futures trading, risk capital and the ability to withstand equity draw-down as well as the cost in terms of both time and money to trade in the futures markets. With so many systems to choose from, it is important to understand the system you are choosing completely and make sure it suits your trading style 100 percent. Many traders start by looking at the potential profits of the system without ever considering the time involved in front of a computer to create this level of profit. Others traders never look at the risk side of the system and at some point when the trader is confronted with this rick he or she will fail to follow the system thereby altering the statistics and trading outside the rules.

How do I know if the system is any good?
One of the key elements of a trading system is the ability for a trading system to hold up over time. You must take your time and study results before you open a trading account. You will need to understand the system in its entirety. After you feel competent with your understanding and knowledge of the system you must begin by SIM trading the system and tracking all your trading results in a journal. By comparing these results over time you will start to see patterns and performance results. These results will be your baseline proof that the system has validity.

The only true test of a system is to see how it performs in actual trading where market slippage and trading cost are a part of the record. When you have thoroughly finished testing on SIM you should now move to making actual trades for real money. Start out small and prove your concept. After you have proved the system functions well and returns a small profit consistently over time, you can scale your trading up to the next level. Be extremely cautious while increasing your size and risk of your trades. By increasing size you can easily change the results of your trades because of criteria outside of your control such as slippage. Also as you increase size you increase risk therefore you increase emotional forces. These underlying emotions when multiplied by larger exposure and risk can easily cause you to make mistakes.

The Conclusion
By making sure you choose a quality system that meets your needs and your trading style, you will be assuring yourself a profitable and successful trading career for many years to come.

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