All of the options ► Futures-style options
What is margin and style options
Since 2009, RTS launched trading on the futures market Futures-style options on the RTS index. The new contract gradually rastorgovyvaetsya and all participants of the market actively try to work with an unusual instrument in the near future line-style options on futures will be expanded.
Futures-style options are essentially new kind of instrument on the Russian derivatives market and open up broad prospects for the market participants. With a single system, the revaluation of the bidders will be able to more effectively manage the portfolio of futures and options that will lead to a qualitative development of the options market.
In fact, a new type of option significantly changing the way the settlement of options.
The main difference - the buyer does not pay more than once the entire amount the seller Prize (and the seller does not receive it).
Instead, both the buyer and seller to exchange holds collateral and on the basis of change in the option price accrues to them twice a day (morning and evening clearing) the positive or negative difference on the price of the transaction (so-called variation margin).
The option price is calculated RTS stock exchange and is broadcast in trading terminals and published on the site of the Exchange.
It is worth noting that due to the calculation of the variation margin in real-time style options deep in the money is no longer exposed to currency risk. Here it is necessary to explain in detail the reasons of foreign exchange risk on nemarzhiruemyh options.
The fact that the futures price (and consequently options) on the index
RTS is uniquely tied to the dollar, and the actual payments are made on FORTS in rubles, and the option premium will be charged to the accounts at today's dollar. And tomorrow the dollar becomes known already at 12 noon, and from that time we will know how our premium will cost in rubles tomorrow.
Thus, if tomorrow's dollar rose by 1%, the purchasing option is deeply in the money and futures to hedge it, we'll automatically earn that 1% to your account after the evening clearing session (with 1% of the premium paid). Let us consider an example.
For example, we bought at 15.00 put option with a strike of 150,000 at a price of 50,000 futures on the intrinsic value (100000 pips). The current rate of the Central Bank - 34 rubles per dollar, tomorrow - 36. When buying from an account will be charged 100,000 * 0.02 * 34 = 68,000 rubles. Tomorrow at a constant value of the futures we get 100,000 * 0.02 * 36 = 72,000 rubles. Increase per day - 5.8% - is fully consistent with the increase in the dollar. And it will be a real income from further rate changes independent. If the futures price will rise or fall in price, the option to compensate for the loss of the positive variation margin for futures. Also, you can not hold the position, but simply to exercise the option.
With Futures-style the options the situation is reversed - warranty and variation margin is calculated in real time and in a similar case, a positive variation margin of the option will be fully compensated for the negative margin on futures and the overall financial result will not change (until the delta position is unity).
The presence of open positions require the submission of accounting firms financial guarantees of performance of the contract in the form of a margin. Under margin refers to the preliminary guarantee fee, which the client transfers to the broker or brokerage account. Margin is required to be paid members of trade financial futures on both sides. As a deposit, the money can be used in hard currency, certificates of deposit, stocks, bonds.
The initial margin paid for each open position, and varies depending on the underlying asset price volatility, but it is usually no more than 10% of the value of the underlying asset, as described in the contract. Initial margin is inherently rather a tool to guarantee the exact fulfillment of the contract than the payment for selling the asset. Additional margin may be required in the event of sharp fluctuations in prices in the futures market, which can destabilize the system of guarantees.
Variation margin on the stock exchange - a concept which is relevant primarily to futures trading. In this case, it is called the variation due to the constant changes. It is calculated from the opening position. For example, we bought a futures contract on the RTS index at the price of 150 100 points, and ten minutes later the price has risen to 150 200 points. In this case, the variation margin amounted to 100 points, but, of course, this option is not measured in points, and in rubles (ie, about 67 rubles). If we do not fix the profit, but simply continue to hold the position open at the end of the trading session (that is, in the evening clearing) variation margin enters column accumulated income and the new trading day, the margin will be charged again. Simply put, if we kept the position open for one trading session, the profit or loss on the transaction value will be equal to the margin, and if the position has been open a few sessions, its result - the sum of the margin values for each day. A positive value indicates the margin of profit on a given time interval (ie, we correctly identified the direction of price movement), negative - on losses on our trading account.
The requirement of the customer introducing broker at the expense of additional funds due to the fact that have been bought or "short" sold additional securities or as a result of unfavorable stock market price movements.
Margin transaction - purchase and sale of securities for which the calculation is made using cash or securities provided by the broker as a loan to his client. There are two types of margin transactions:
- Long buy (or «long») - is to buy securities. In this case, the broker provides the customer with a loan in the form of cash.
- Short selling (or «short») - is the sale of securities. In this case, the broker offers the loan in the form of securities.
Margin trading is attractive due to its accessibility. Investing in securities of leading foreign countries in order to obtain a fixed income is unlikely to be of interest to our compatriots. Of course, the US Federal Treasury bonds - the most reliable and stable, but their high cost, they provide a low yield (about 6% per annum) and are subject to long-term investments. On the shares yield is higher, however, the amount of dividends depends on the success of a concrete enterprise and preferences of its shareholders. More interesting is recognized buying stocks with the direction of increasing their rate, but this has required larger investments.
Margin Size: The size of a credit "shoulder" (margin) on the FOREX market (forex) is determined only by agreement between the customer and the bank or brokerage firm that provides him access to the market, and usually is 1: 100. That is, by making a deposit of $ 1,000, the customer can make transactions in an amount equivalent to 100 thousand dollars. The use of large credit "shoulders" of these, coupled with the highly variable currency quotations, and makes this market highly profitable but also highly risky.
Margin trading is devoid of the above limitations - you can buy and sell depending on your expectations, and for the operation will be sufficient funds in the amount of only 1-3 percent of the transaction amount.
Leverage and margin deposit
Broker (DC) provides an opportunity to trade on the market an amount much greater than you have available, giving you the loan at a certain collateral (margin). To determine the size of the collateral used the concept of leverage. Let's look at an example of trade with a leverage of 1: 100 and in detail Let us examine how that taken.
Suppose that we want to buy 100 thousand. Euros for dollars and the account has only 10 thousand. USD. If a broker (DC) provides a leverage of 1: 100, this means that for the purchase of 100 thousand euros as a pledge, we need only 1% of this amount.. Those. when you buy EURUSD at the rate of 1.32455 is necessary to have on deposit at least $ 1324.55 - this amount will guarantee margin for the opening of the transaction. If the account prior to the opening of the transaction was $ 10,000, the "free" for further trade remains 10000-1324.55 = 8675.45 + -plavayuschaya profit / loss.
Now suppose that the Euro exchange rate has gone up by 50 points and became the 1.3297, the funds in the account, respectively, increased by the floating profit (1.3297-1.32455) * 100000 = $ 515, but the deposit amount will increase to $ 1329.70. Thus, the deposit is 10515, and free funds for opening new positions 10515-1329,7 = 9185.3.
If, say, the Euro exchange rate fell by 50 basis points to 1.3195, then the loss will be (1.32455-1.3195) * 100000 = $ 505, the funds in the account will be reduced to $ 9495, and the available funds to open new positions will 9495-1391,50 = $ 8093.5
I want to draw attention to the fact, that in itself does not leverage creates additional risks - risks arise as a result of the opportunities that arise when using leverage. To these words were more clear, let's look at an example with our calculations for leverage 1:50. In this case, the loan secured on an open position will be at $ 1324.55 and $ 2649.10, and the size of the available funds will be 10000-2549.55 = 7350.90. However, with an increase rate result is still the same - $ 10,515 with an increase rate up to 1.3297 and $ 9495 with a decrease rate up to 1.3195. Change the amount of available funds.
Thus, the greater the leverage, the greater may be risks, but the size of the risk itself does not depend on the shoulder, and the trader - only he chooses, with some risk to trade.
Initial Margin (warranty coverage)
Initial Margin (initial, initial margin), or warranty support - it is returned the insurance fee levied by the exchange at the opening position in a futures contract. Usually it is 2-10% of the current market value of the underlying asset.
Initial Margin is charged with both the seller and the buyer.
Once the buyer and seller have concluded on the stock exchange futures contract, any link between them is lost, and the side of the transaction for each of them begins to act calculated exchange chamber. Thus, the initial margin is intended to guarantee the clearing house and its members from the risk associated with non-performance by one of the customers of their obligations under the contract, that is to ensure the financial viability of a clearing house exchanges in a changing market environment.
At the leading stock exchanges of the world to calculate the collateral used SPAN methodology (The Standard Portfolio Analysis of Risk), which allows to calculate the total value of collateral on a portfolio of futures and options based on the analysis of the overall risk of the portfolio. SPAN analyzes warranty under different market conditions. Many portfolios include positions that offset each other. In such cases, the minimum requirements SPAN may be lower than in other systems, calculation of collateral.
Currently, initial margin will be charged, not only exchange with market participants, but also the practice of levying additional collateral broker with their customers (ie broker blocks of the client's assets to secure its position in the futures market).
The Exchange reserves the right to increase the margin rate. In some cases, increasing the rates leads to a change in the contract value. This is due to the fact that the smaller market participants is not enough funds to cover the increased margin requirements and they start to close their positions, which ultimately leads to a decrease (if closes a long position) or increase (if closes a short position) prices on them.
What is a margin call
Margin call - a requirement of the client making the broker additional security to your account. In other words, a margin call is the moment when the personal account of trader arises lack of free margin, and it is forced or update your account or to close part of open trading positions in order to maintain the status of their account at a sufficient level.
Whenever forex speculator takes a position with the help of the dealer (the broker), part of the money in his account frozen, forming a so-called "security deposit." When opening a position the security deposit is used as collateral. It should be noted that the intermediary company, providing services to traders to trade currencies in the Forex market, every day counts time (floating) losses and gains on the open player position.
If the client does not have sufficient funds to ensure ongoing losses, he receives margin call, signaling the need to refill. If the MS-trader has not taken any action to increase the deposit, the position will be closed automatically by the broker, and the player will suffer a real loss.
It is worth noting that the current loss may occur as a result of unforeseen exchange rate movements in either direction, which is opposite to the open trading positions.
Usually, Margin Call occurs when the balance of 20-30% of the funds in your account and more. Upon receipt of such a signal, the participant can fund your account in cash. After closing the position trader for Margin Call, dealer unfreeze funds blocked on the trader's account, and they again become available for trading as collateral under the new deal. It is recommended never to reach margin call level. To do so, close the losing positions before the lucrative, to observe the basic rules of money management.
If you do not have a trading plan, and you hope that the market went against your position is temporary and will soon unfold, you can wait for the occurrence of the above described situation, and suffer very large losses.
Reason margin call
Usually, the reason for margin call - the result of the unfavorable market situation. For example, reducing the cost of the asset, purchased with borrowed money, or its increase if the trader has a short position. Another reason for margin call - rate increase of the minimum margin level, which is calculated by a special formula market. Among other factors that may unexpectedly lead to forced closing - the increased volatility and changes in the law (for example, a complete ban short positions or restrictions on the use of credit broker).
Margin call - a situation in which an investor's account balance falls below the minimum acceptable standards. It's about the securities purchased by the investor at the expense of credit broker (shoulder). In order for the securities positions were forcibly closed by the broker, the investor need to update your account or to close the position.
Margin call is hard to predict in critical situations. Often it leads to the suddenness of a "domino effect." Sale of the shares leads to a drop in the value of the remainder of the securities that may result in an almost complete loss of money in the account.
What is the margin on Forex Exchange?
Margin or collateral - is the amount by which the forex dealing centers provide a credit line to a trader trades in the Forex market. Margin shows the value of the loan allocated and reflects the likely profit from the broker of transactions on the client's account.
The margin is usually characterized by profit. The term is used in the margin of the exchange, trade, banking and insurance activities in order to indicate the difference between the purchase price and the selling price of goods, exchange rates, forex rates, interest rates on loans and insurance instruments or other indicators.
For Exchange Forex Margin describes the mandatory deposit, which makes the trader from your deposit at the conclusion of the transaction for the sale or purchase of foreign currency.
This deposit makes it possible to obtain a short-term loan from the dealing center. Specificity of the margin that the trader receives a credit only for speculative currency transactions. If a trader loses a deal, and therefore will not be able to return the borrowed funds, dealing center deducts the margin on your account as compensation.
The margin is a direct result of Forex Trader credit conditions: the amount of collateral depends on the leverage (ie, the value of credit available for the trader trades). This deposit ensures profits dealing center, regardless of what the result will get himself a trader.
The fact is that when a trader buys or sells currency on the Forex market, on account of his record bail amount is reflected in the trading terminal (or margin) for this operation. If a trader loses a deal and get a loss, the margin goes to the broker as a guarantor of its credit - because the broker provides the trader borrowed capital for transactions, and the need to pay for this service, regardless of how successful the trader was able to take advantage of this credit.
An example of margin trading and shoulder
In order to make the transaction of 1 lot (1 lot is equal to today
$ 100,000), the trader is obliged to create a deposit for $ 10,000, while having given Leverage: 1:10. 1: 100 If the deposit will be equal to $ 1000, this leverage should be used.
As you can see, the income of a future transaction, the trader will be equal, but ... Leverage increases, and hence - the margin is reduced.
If the account has $ 10,000, and we have the opportunity to increase the shoulder of 1:10 to 1: 100, then we can make 10 times more transactions in the account having just $ 1000.
Leverage and Margin in general - are mutually inverse concept. We should sit down and very well understand all the subtleties, all the characteristics. In another way to understand the principle of forex is not possible, because the above-mentioned concepts are found in each broker. How to try to get the desired result without understanding what it is?
Thus, the margin (margin) in the forex - it is the means that the broker reserves from the account as collateral for open trading position. In the trading terminal MetaTrader 4 margin level for all open items is displayed in the information line on the trading account in "Collateral":
It should also be noted that the funds reserved as collateral may be far less traded lot. Moreover, the main factor affecting the margin is the amount of leverage provided by the broker. Accordingly, the greater the leverage, the less money will be deducted from your account as collateral opened and already open positions.
The same effect on bail, though less significant, and may have traded currency pair belonging to one or another group of tools. Where the calculation of margin, when making transactions in the cross-rates, and pairs with direct quote, will also take into account the exchange rate of the base currency (the first located in the pair) to the US dollar.
Margin trading system on the FOREX (Forex)
Typical volumes of transactions in the interbank trading was $ 10 million. However, it is clear that such transaction size is not available to a private investor, well, or at least the vast majority.
The participation of small and medium investors in the FOREX (Forex) has become possible thanks to the mediation efforts dealing or brokerage firms. In many countries medium and small investors have access to the world currency market, using in their operations, the amount of 2 million US dollars. Dealing company provides its customers with a credit line, the so-called "leverage dealing" or "leverage" is several times greater than the amount of the deposit. Brokers providing services of margin trading, require making a security deposit and allow customers to make purchases and sales of currencies for amounts of 50, 100, sometimes even 200 times greater than the deposit made. The risk of losses is assigned to the client, the deposit serves as a collateral, insuring the broker. The system works via a dealing (brokerage) company with provision of credit leverage was called 'margin trading "(" margin trading ").
If you simply, the essence of margin trading is the following - the investor, placing the mortgage capital is able to target credit management allocated under this pledge and guarantee their deposit losses on open currency positions.
In margin trading each transaction always has two phases: the purchase (sale) of currency at one price and then obligatory sale (buying) it at another (or the same) price. The first act is called the open position, and the second - the closing position. When opening a position actual delivery of the currency does not occur, and the participant who opened the position, making a damage deposit, which is a guarantee of compensation for possible losses. After the closing position of the insurance deposit is returned, and there is a calculation of profit or loss.
No matter what type of analysis favors the trader, sooner or later, it still refers to the concept of "trend line". However, despite the widespread use of trend lines in the graphical analysis, there is no consensus on the modalities of their construction and interpretation…