Leverage for futures contract percentage, higher, assets, accounts, contract

mouse123

margin in futures accounts is typically much lower as a percentage of the value of the assets covered by the futures contract.

why does that mean leverage for futures accounts are much higher?

marsilni

The lower the margin required, the more amplified the gains and losses will be. That is the classic definition of leverage.

A couple of ticks in a Euro Dollar F can wipe you out.

Jolyn

At $25/tick, if that wipes you out you probably shouldn't be trading futures contracts.

MythosHF

firehydrant1 Wrote:
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>
> why does that mean leverage for futures accounts
> are much higher?

Leverage is higher compared to what?

But in general, this just means you can take bigger positions for a given amount of margin.



Edited 1 time(s). Last edit at Tuesday, October 26, 2010 at 09:31AM by ohai.

Ionutzakis

JoeyDVivre Wrote:
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> At $25/tick, if that wipes you out you probably
> shouldn't be trading futures contracts.

You have no idea how many retail "traders" open a futures account with 1K and try to get rich.

Wasteoftime

That doesn't mean they should be doing it.

kd26gioi

ohai Wrote:
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> That doesn't mean they should be doing it.


Exactly. But still they do it.
If someone wants to gamble Futures market is the last place they should be going, they won't even know what hit them.

The folklore is full of master Futures traders who started with 3K, 4K and struck it rich (losing the initial capital many times over though). Market Wizards 1 & 2 is full of those kind of folks.

Coming back to leverage, as you said, this means you will be controlling 100K worth of underlying with 10K deposit. FED Reserve wont let you do that with stocks.