When does my money I used to buy a futures contract and the proceeds I got from that contract convert back into buying power. Is it then end of each session, the next day, or two days after I sold my posistion. I have a cash account with around $1400 dollars and am trying to figure out the maximum number of trades I could take during the New York session
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The money you put in id included in the proceeds, at least as I use the term. Proceeds minus cost equals profit.– keshlamCommented Apr 15 at 14:05
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3You don't "buy" a futures contract like you buy a stock, since no money is exchanged upfront. You might have to put up margin periodically as your profit/loss changes. So the maximum number of trades depends on the margin requirements– D StanleyCommented Apr 15 at 14:32
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So when would the money for the margin costs turn back into buy power– Landon GrossCommented Apr 16 at 2:53
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1 Answer
To trade futures contracts you must have a cash and a securities account at your clearing broker / or the exchange directly. For simplicity in the explanation below I'll just refer to your account at the exchange.
Initial margin - this is cash up front that you have provide to the exchange when you enter a futures contract. This is paid on the same day or earlier when you enter the futures contract.
Variation margin - this is your profit / loss on the trade and is settled daily. When you make profit, the exchange credits your cash account. When you make a loss, the exchange debits your cash account.
If you make a loss such that your cash account falls too low, you will get a "margin call" and you will have to add cash to your exchange account.
If you close the futures contract or it expires (you have no more securities in your securitites account), and remaining cash will stay in the exchange account until you ask them to pay it to another account of yours (eg your bank). This is called a sweep. If you have more money in your exchange account than the exchange requires, you can also "sweep" it back your bank account if you want.
The exact determination of how much minimum cash you need in your account is complex and varies between exchange and contracts. However, it is usually a significantly smaller amount than the "notional" of a futures contract. This is where the leverage of futures contracts arrises.
You can trade 100 USD worth of oil futures, but only have to place ~30 USD in your exchange cash account, leaving the "other" ~70 USD to do whatever you want with. In reality, the "other" ~70 USD doesn't actually have to exist, and frequently doesn't.
