Margin is a performance bonus in stock and futures trading, with reduced spreads for day traders. Futures brokers may allow intraday margin trading, with margins about half the regular overnight margins. Traders are responsible for any losses incurred, and daily trading margins in futures can be smaller than in the stock market. US futures brokerages accept as little as $5,000 to open a futures trading account, with the broker having discretion in deciding what trading activity qualifies for day trading margins. Daily trading in the stock market requires a minimum of $25,000 and a maximum leverage of four to one.
Margin is a term used in the stock and futures trading community, and refers to a performance bonus rather than the full amount traded. United States exchanges allow reduced spreads for traders who enter and exit the market on the same day, called day trade spreads. Futures brokers may, but are not required to, allow their publicly traded clients to only post intraday margin trading. These margins are about half the regular overnight margins. Other countries may have different margin requirements and/or rules that do not allow for reduced day trading margins.
The trader is responsible for any loss it may incur, whether or not it exceeds the amount of margin it has posted, and whether or not it has sufficient funds in its account to cover the losses. Daily trading margins in futures can be a much smaller fraction of the traded value than in the stock market. For example, daily trading spreads on ten-year US Treasury bonds are often less than $1,000 United States Dollars (USD) per contract, with each contract having a face value of $100,000 USD. The $25,000 that the stock trader needs to post to trade $100,000 of stocks will allow him to trade $2.5 million of ten-year US Treasury bonds.
Many US futures brokerages accept as little as $5,000 USD to open a futures trading account on which the trader can use daily margin trading. The broker has broad discretion in deciding what trading activity qualifies for day trading margins. Many brokerage firms define a day trade as any trade that is opened and closed during normal business hours in the United States. The exchange sets the actual amount of margin required for each contract and is based on the volatility and risk of the instrument being traded. For an up-to-date list of US regular margin requirements, the CME Group is a good resource.
Daily trading in the stock market differs from daily trading in the futures markets. The United States Securities and Exchange Commission (SEC) defines a pattern day trader as one who executes four or more trades in five business days in a margin account and is more than 6 % of your business activity during the five days. Daily trading margins must meet the SEC requirement of at least $25,000 USD. The maximum leverage for a stock trader is four to one: he can trade up to $100,000 worth of stocks in his minimum account of $25,000 USD.
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