Good to know each trader ► Margin trading
The stock market price changes Day are not great, and make a lot at once with a small amount in your pocket will not work. For the most greedy, or for those who are fully confident in its forecast, brokerage companies offer assistance. Leverage, the design of which does not require a lot of time.
Margin lending, and trade with the "shoulder" is called insider trading, which are carried out by the investor with a special open a margin account with a broker. Part of the value of the transaction is paid by means of the client's own cash and part through a loan broker. The main advantage of margin trading in a significant increase in profitability of trading operations, and this is what attracts to the market a large number of investors, including small ones.
On the scale of the financial market in general, "credit margin" provides liquidity of trading growth, the volume of transactions increased by additional funds provided by the operators of trading investors.
The order of leverage is regulated by the Federal Service for Financial Markets. Until mid-spring of 2005, officially to all, the restriction to operate. The amount of own funds of the investor should not be less than 50%. However, this limitation is not uncommon to dispense with the help of various kinds of schemes. On April 1, 2006 came into force a new procedure for conducting margin transactions, which introduced the concept of "qualified investors" are those investors who have a sum of at least 600 000, using brokerage services for at least six months, and are already working with a "shoulder " during three months. For them, at least Equity reduced to 25%.
Wishes to take advantage of credit margin should first carefully weigh the pros and cons objectively assess their capabilities. If the trade is not enough experience, better to limit its own means, as well, it is necessary to take into account factors such as the situation in the market, the size of its own leverage position, the rate on the loan, the size of broker commission, and so on. Of course, not all are confident in their professionalism enough to use the leverage. There are investors who work with margin trading on a regular basis, and there are those who use it occasionally. In general, according to some experts, the share of operations with the use of margin accounts in the general market turnover, up to 40%, and sometimes up to 60%.
Futures contracts have a huge number of useful properties and are of great interest for many investors. A good proof of this is the fact that in most developed stock exchanges, trading volume on the futures market turnover exceeds spot instruments. However, many investors, especially beginners, eschew futures and options because of the apparent complexity of the calculations for him. Serious questions often causes the process of calculating profits. With shares clear, buy cheaper, sell more. And how to calculate profit on futures? To calculate the revenue and customer losses are used complex formulas that might confuse any beginner investor.
So, first we need to understand what a "variation margin". The dictionary gives the following definition is usually - the variation margin, is the monetary value of obligations changed as participants of exchange trades take into account changes in futures contract prices. However, the process of calculation of profit and loss on the futures market, this definition does not explain properly.
Variation Margin - is the income or loss of the investor resulting from changes in futures prices. It is calculated daily by the end of the trading session for each open position on special formulas. The formula for calculating the variation margin, as a rule, is public information, and it can always be found on the website Trade Organization. After the purchase or sale contract in internet trading system, there is a table with a field of "variation margin", which changes periodically depending on the current price. If, after the acquisition of the contract continues to grow, the variation margin will be - positive, if quoted prices will go down - negative. The final calculation of the variation margin carries Exchange after a successful bid, usually at the closing price, that is, according to the latest transaction. The next morning, the winning trader will receive the money on your account, that is, the "positive" variation margin. On the losing, money, on the contrary, will be written off, its variation margin, respectively, will be "negative".
And perhaps one of the most notable differences between the futures market on the spot - in the course of transactions with shares your score changes only at the moment of purchase or sale, and when dealing with futures trading, the amount of your money is changing every day, so your profits can be sent into circulation almost immediately after it is received. However, it is absolute advantage of futures is able to turn around and close their disadvantage. If the position becomes unprofitable, the funds are debited from your account, too, very quickly, and if the amount of your loss will be, say, half of the introduced collateral, ie, collateral for opening a position, the broker will likely need to make extra money, if you refuse, then the position will soon be closed.
Calculation of the variation margin system is the hallmark of the derivatives market, which distinguishes it from a number of unique spot. Moreover, in addition to their basic properties, this type of margin has another meaningless in any textbook. Variation Margin, makes trading more dynamic compared to the calculation of the system on the spot market, but for such a dynamism not all ripen. Novice traders are inexperienced quickly lose much of their funds.
Margin trading derivatives
A financial instrument is called a "derivative of a derivative" if its value depends on the price of some underlying asset: the goods, currencies, equities, bonds, interest rate, stock index, temperature, or other quantitative indicators. The risks associated with trading of derivatives depends on what happens to the underlying asset. If the settlement price of derivative financial instruments is based on the cash price of the goods, the risks associated with these derivative that will change with the value of the product.
The ability to earn a lot of money by trading derivatives attracts a large number of traders in the futures market. It is tempting to point here is that the clearing house, together with the exchange (for which it acts) sets the level of the guarantee deposit (for exchange-traded contracts), or so-called "initial margin" at a very small level. Usually it is 5-10% of the contract value.
The amount of initial margin is calculated so as to cover the maximum daily fluctuation control prices. Typically, the deposit margin size increases as we approach the date of delivery. Initial margin payments are relatively small compared to the cost base of the contract, this allows for a relatively small investment of funds to open positions with the big "shoulders", which is extremely attractive for experienced investors.
In order to determine the size of the initial margin Exchange uses various statistical and analytical methods and models.
Futures contracts are revalued daily at market price, that is, their value is determined using the settlement price at the end of each trading day. As a result, the contract value may rise and fall, that is, there is a profit or loss. Gains and losses are recognized in the accounts on a daily basis counterparties clearing house. Profit can be withdrawn from the account, but if you experience a loss, to cover their need to make additional margin called "Variation". Its introduction allows you to maintain the size of the security deposit at a constant level. If the variation margin does not contribute, the position will be closed as soon as the loss will reach the size of the initial margin.
Derivatives are the basis of the set of trading strategies and even though they have been around for a very long time, the range of use continues to expand with the development of financial markets. Some derivatives are very simple, while others are very complex, but in any case for their effective application is necessary to clearly understand the associated risks and benefits.
Option Strategy - this is usually a set of transactions according to various options and sometimes the underlying asset in one's investment portfolio. Depending on market expectations of behavior can be distinguished bullish, bearish and neutral strategy.