To trade futures market contract, the Client is required to submit a sum of money called “MARGIN”.
Margin is a good faith deposit posted at the time of entering a futures contract position to ensure performance.
The amount of margin required is varies, usually about 5% – 10% of contract value, depending on the commodity, time, and daily price fluctuations.
During the trade it may require additional deposit (margin call), when the initial margin was reduced due to price movements in contrary to the prediction.
If the margin balance reaches a certain threshold, client who has “open” position, either buying or selling, need to add margin to the previous amount (initial margin).
Predetermined margin requirement applicable to the period of time, and can be changed according to circumstances and conditions.
In addition there is a commission fee charged by the Broker, which the minimum is established by the Exchange with the approval of BAPPEBTI.
|Margin Requirement Per Lot (Day and Overnight Trade)|
|USD/JPY||Rp 10.000.000,-||XUL10 (LLG/EMAS)||Rp 10.000.000,-|
|EUR/USD||Rp 10.000.000,-||JPJ30 (NIKKEI 225)||Rp 20.000.000,-|
|GBP/USD||Rp 10.000.000,-||HKJ50 (HANGSENG)||Rp 20.000.000,-|
|AUD/USD||Rp 10.000.000,-||KRJ35 (KOSPI 200)||Rp 20.000.000,-|
WHAT IS LEVERAGE?
Leverage is using a relatively small amount of money (known as margin requirement) to control a much larger amount of money.
The SMALLER the margin in relation to the value of the contract, the GREATER the Leverage!
Leverage enables investors to trade futures contracts with a small capital but equal in value to the Contract itself.
With Leverage facility up to 1:100 investor only needs to provide small amount of capital to trade.
LEVERAGE IN ACTION
You intented to buy 50,000 lbs of cotton to sell at a later date.
Spot Gold Contract = 100 troy oz
Margin Requirement = $ 1,000
Buy at $ 1,700/troy oz
Sell at $ 1,725/troy oz
|Physical Trading||Margin Trading|
|Initial Investment||$ 170,000||$ 1,000|
|Profit/Loss||$ 2,500||$ 2,500|
COMPARISON BETWEEN PHYSICAL TRADING AND MARGIN TRADING
|Physical Trading Account||Margin Trading Account|
|100% equity/capital tied up in the transaction||A small % of equity/capital (1% – 5%) needs to be employed|
|Relatively shorter trading time||24 hours trading|
|Wider Spread & transaction cost||Narrower Spread + relatively lower transaction costs|
|Market squeezes and lack of liquidity||Abundant liquidity|
|Buying power hindered by huge cash outlays||Greater buying power with small cash outlay|
|Depressed return on investment||Increased return on investment|