Leverage ratio futures trading
If you have an urge to trade for big profits, the futures markets are the place for fast-moving action and a chance to score big gains — or wipe out your trading account.
Leverage is the grease that makes big profits on small investments possible: It allows you to control tens if not hundreds of thousands of dollars worth of a commodity with a deposit of a few thousand bucks.
The futures markets set a different level of leverage for different types of commodities and financial products. Each futures contract is set for a certain amount of the underlying commodity or instrument, and the value of the contract is based on the price of the commodity. E-mini futures are smaller than standard-size contracts, which only trade electronically and are popular with individual traders. To trade a futures contract, your commodity futures broker will require you to put up a margin deposit.
The commodity exchanges set the margin amounts for each type of contract. This is the money you must have to control the value of a specific futures contract.
The commodity exchanges adjust margin requirements as the value of futures contracts rise and fall. Calculate the leverage of a futures contract by dividing the value of the contract by the margin requirement.
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Futures with low levels of volatility, such as Treasury bills, can have much higher leverage. Treasury bill rates might move only a few hundredths over the course of a week.
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Futures trading covers a wide range of products, from corn to interest rates. Size of Contracts Each futures contract is set for a certain amount of the underlying commodity or instrument, and the value of the contract is based on the price of the commodity.
Margin Deposit Requirements To trade a futures contract, your commodity futures broker will require you to put up a margin deposit. Contract Leverage Calculate the leverage of a futures contract by dividing the value of the contract by the margin requirement.
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