Futures trading at Interactive Brokers involves margin, which also allows investors to increase their purchasing power by borrowing funds. Understanding how margin works for futures is crucial for effective trading. Here is a comprehensive overview:
- Futures Contracts and Margin Calculation:
- Futures are standardized contracts to buy or sell a specific asset at a predetermined price on a future date.
- Margin requirements for futures are primarily governed by the exchange through a calculation algorithm known as SPAN (Standard Portfolio Analysis of Risk) margin.
- SPAN calculates performance bond requirements by analyzing various market scenarios.
- Interactive Brokers considers extreme market moves and may require margin above the exchange-mandated amount for additional safety.
- Margin Requirements and Monitoring:
- To execute a trade, your account's Net Liquidation Value must exceed the Initial margin requirement for the desired position.
- Margin requirements can change based on market conditions and may differ for various futures contracts.
- Your Available funds must be sufficient to cover Initial Margin and your Excess Equity must be sufficient to cover Maintenance margin.
- You can view current margin requirements for futures on the Futures and FOPs Margin Overview webpage.
- Before submitting an order, you can check projected margin requirements using the "Check Margin" feature in the trading platform.
- Account Types and Margin Rates:
- Margin rates in an IRA margin account may be higher than in a non-IRA margin account.
- Cash accounts and IRA accounts do not have access to intraday margin rates.
- Monitoring Margin and Avoiding Margin Calls:
- It is crucial to monitor margin requirements regularly to avoid margin calls.
- Interactive Brokers provides tools to help you monitor your margin:
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