Trading
Higher margin requirements – is the bitter pill good for you?
By Mandy Ong  •  April 2, 2009
[caption id="attachment_2172" align="alignright" width="150" caption="Photo by baronsquirrel"]Photo by baronsquirrel[/caption] Throughout my broking career, I often have clients lamenting that the increase in margins have made it very difficult for them to trade. The local broking firms, under the regulations of MAS, require clients to put up the required margins before they can initiate a position. When I joined the futures broking industry in year 2000, the margins required for 1 lot of SiMSCI is abt 5% or S$2000, but due to the current market volatility it has tripled to almost 15% or the current S$6000 despite the falling contract value. Increases in margins are often viewed as a hindrance to futures traders seeking to maximise their profits through the use of leverage. The higher the margin requirements, the lesser the leverage. However, traders must take a step back and look at it at a different light. Margins serve as a check for clients so that they do not over-leverage and lose their entire investment. Say, a trader has S$12,000 in his account, if margins are at 5% of the contract value which is about S$2000 and he choose to maximise his leverage by trading 6 lots of SiMSCI, his account would be wiped out if he had shorted at 2000 and the market rallied to 2100. At 15% margins, he can only trade 2 lots, and had market rallied to 2100, he loses S$4000 and preserves his capital for another trade to be able to recover his losses. Therefore, higher margin requirements is indeed a bitter pill, yet it is for your benefit. Having said that, clients should not base their trading size according to margin requirements. Successful traders have a strategy and trade according to what their risk level allows them and will not max out their account to maximise their profits. Source: TheMidnightStar
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By Mandy Ong
Mandy Ong started out as Futures Broker with a SGX clearing member firm in year 2000, handling institutional and retail clients. In year 2003, she became a commission-based Broker, servicing her own clients. During this time, Mandy found that many retail investors are not familiar with trading futures due to the lack of education and proper information, and the futures trading courses that are available are very over-priced and over-sold. Many investors often part with their hard earned money investing in something they do not fully understand. Therefore, she quit broking in Sept 2008 to devote more time to educating the public on Futures Trading. The main objective of The MidnightStar is to introduce investors to Futures Trading and help you understand what trading is all about before plunging into the markets. The website will give you market updates, information and news to help you in your trading. If you are new to Futures and need more help, we have courses to help equip you with the skills and knowledge required for successful trading. As an ex-broker, Mandy will also share with you the secrets of successful traders, what they do right where others have failed.
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