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hello traders and welcome back to
another survival guide in today's
discussion we're going to be covering
exactly the minimum amount of money that
is needed in order to trade and i say
the minimum amount of money because yes
the amount of money we choose to trade
with is going to be a very subjective
decision based on a number of different
factors and personal risk tolerance but
there is a minimum number of dollars
that are going to have to go into the
machine in order for the machine to
function and those are the costs
associated with trading so we're going
to cover all of that and more if you're
a new trader this is going to be a great
video for you and at the end of all of
this if you feel
so invigorated take a look at the trader
career path it's an awesome opportunity
now let's dive in to that material
in the trading world it's very common to
hear traders talking about their
winnings their earnings or even bad days
in general but what we don't hear a lot
of is the nitty-gritty boring stuff the
stuff that you actually need to know in
order to begin a trading journey such as
what are the costs associated with
maintaining a trading lifestyle how much
commission is it going to cost me in
order to place a trade or maybe you
didn't even know that commission was a
thing the first thing that we're going
to cover though is what the futures
world really is or what a futures
contract is more
specifically so a futures contract is
really just a financial transaction
that's traditionally based on a
commodity asset or stock market index
under futures contracts a trader is
obligated to buy or sell that specific
asset at a predetermined price by a
specific date
volume and futures trading has increased
dramatically in recent years which is
why we as traders care about this
usually traders will flock to the things
that have the most volume this chart
that we're looking at here is the s p
500 index and as it has absolutely just
exploded on the left of the chart we
have 2012 being at a price of below 2000
and then on the right we're in 2022 well
above 4 000 possibly pushing in the
fives relatively soon that is absolutely
crazy and as a result the cost to be
able to trade the s p 500 index has gone
up but there has been advents we have
seen the introduction of contracts that
are cheaper like the e-mini s p 500
where we now have something that's only
five points per index point instead of
the e-mini s p 500 what we're looking at
which would be more like fifty dollars
per index point so there's been tons of
new opportunities that have presented
themselves for us as traders as the
market has evolved so have our options
but if we don't want to trade with our
own money there is something called
margin margin is where we're going to
borrow someone else's money and we only
need to put down a fraction of what is
actually owed now as we put this money
down it's going to be categorized into
different amounts for different reasons
the first is going to be initial margin
so initial margin is going to be the
initial margin requirement to gain
exposure to an individual futures
contract and this is going to be a
number that is set by the exchange if
you look at the e-mini s p 500 futures
contract for example the initial margin
required is going to take into account
historical volatility and as such it has
been moved quite a lot higher in recent
times at this point it is currently
twelve thousand six hundred and fifty
dollars at the making of this video then
we have maintenance margin maintenance
margin is going to be after the initial
margin deposit so this is going to allow
us to keep our positions open to
continue to maintain our position really
so looking at an e-mini s p 500 futures
contract again the maintenance margin is
11
500. so what does that mean if the value
of the underlying e-mini s p 500 futures
contract was to fall by 1500
this would reduce the investor's margin
account balance to eleven thousand one
hundred and fifty dollars because this
is twelve thousand six hundred fifty
like we said to begin with minus fifteen
hundred as the balance dipped below
eleven thousand five hundred which is
the maintenance margin limit this would
trigger what we call a margin call and
at this point the investor would need to
add an additional fifteen hundred
dollars to take the account balance back
up to the initial margin of twelve
thousand six hundred and fifty dollars
next comes the intraday margin this is
often referred to as day trader margin
intraday margin replaces initial margin
for those looking to close their
positions by the end of each trading day
there is no legal requirement for
initial margin one day trading but
obviously brokers need to have a degree
of cover as the risk of holding the
position overnight is eliminated the
margin required can be as little as 500
dollars per e-mini s p 500 contract this
intraday margin compares favorably to
the initial margin hence the growing
popularity in day trading
this chart shows how the initial margin
requirement for cme's e-mini s p 500
futures contract change very drastically
in a relatively short period of time due
to the insane volatility caused by covid
now if we're to consider day trading
there's two main things that we need to
understand
the first is deposit requirements there
are no regulations as such when it comes
to minimum deposit requirements for
those that are looking to day trade
futures consequently it is down to the
individual broker as to the level of
deposit required this may be anything
from as little as fifteen hundred
dollars on a margin account for some
brokers then we have the intraday margin
requirements and again those looking to
day trade futures contracts are not
subject to the same regulations as those
taking overnight positions you will find
that some futures brokers require as
little as 500 in margin to trade e-mini
s p 500 futures contracts this compares
to a 12 650 initial margin requirement
when holding positions overnight as we
briefly mentioned however the deposit
requirements create a safety net in case
of losses beyond the 500 margin account
balance as we can see with this chart
here there was almost a 40 point swing
during the day with the s p 500 during
this particular time period as each
point equates to 50
this is a potential 2 000 profit loss
potentially on one e-mini futures
contract let alone if we were holding
multiple
if we aren't interested in day trading
and we do want to keep our positions
open overnight we're going to always
need to know the initial margin and the
maintenance margin remember initial
margin is going to be the amount to open
the position maintenance margin is going
to be the amount to keep the position
open the good thing about longer term
trading is the potential for profit or
the distance we expect out of moves is
going to be greater ergo it is in theory
possible to have a more profitable
longer term position based on having
more room for the market to travel in a
longer period of time
the exact cost of trading futures is
going to depend on the type of trades
you're wishing to undertake as well as
the level of margin and deposit required
to open and maintain those investment
positions but there are additional
charges that we need to know such as
commission per side this term relates to
the charge per contract when buying or
selling futures contracts for example
some brokers may offer a sliding scale
with commissions per contract falling
the more contracts we trade this could
range from as little as 10 cents to 50
cents per contract and sometimes even
higher depending on the number of
contracts that you're trading then we
have the round turn commission round
turn commission is a one-off commission
that will take into account both opening
and closing of a futures contract again
for relatively large traders the round
turn commission cost per contract is
usually going to be extremely
competitive and then finally we have
other costs to always consider as a
means of creating a competitive edge
many brokers will initially ignore other
fees such as regulatory fees transaction
fees and exchange fees when quoting
trading charges it's important that you
factor these hidden costs into your
calculations because eventually they
probably will be burdened upon you so in
conclusion you can open a trading
account for as little as fifteen hundred
dollars however it's not overly
advisable it's gonna keep you very close
to the failure line and there are all of
those other costs that we discussed that
come with personal trading if you want
to avoid the added stressors of the
personal trading
paradigm where you're worried constantly
about losing your own money then i
encourage you investigate the trader
career path the trader career path
provides you an opportunity to become a
professionally funded trader
where you're going to trade with money
that's not your own the only catch is
you need to prove that you're good
enough if you're good enough you'll pass
the test good luck out there i'll see
you all on the other side cheers
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you