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OK, i get the commission and Im fine with that.
But the contracts vary in size?
Let's assume i have an account open with 5k in it.
If I buy one contract, how much cash do i need to pay for it?
See, im use dto options where you buy it for 2.10 lets say, and they come in packs of 100, so one contract costs $210.00.
Can you put in those terms? sorry im not getting this part of it. |
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Hi. There is only one YM contract, and it doesn't vary in size. One contract is one contract. Its value will vary, depending on the value of the DOW 30 stocks. A YM contract's value is $5.00 times the Dow Jones Industrial Average Index. Each point is worth $5.00, so if the index goes up by 100 points, the value of the YM contract goes up by $500.00. Although contracts do expire four time a year, there is no time decay to worry about.
If you buy or sell a contract, you put up margin (it is different than the preimum paid in buying a call or put). The exchange sets the margin, though it may be modified by the broker. Required margin amounts will sometimes change when the volitility of the market changes. Current speculative margin requirements set by the exchange for the YM is $3125 for intial margin, $2,500 for maintenance margin (meaning that if your trade suffers a loss of the intial margin, you need to put up an additional $2,500 for margin, not just the loss amount). My broker requires $1750 in margin for day trading the YM, but you have to close the position by the end of the day, else it goes to $3,500 (which is more than set by the exchange). Margin can be less when part of a hedge or spread strategy.
Since you are an options trader, think of a futures contract as an at the money call or put that you have written (sold) without any farther out offsetting option. You need a certain amount of margin in your account for any naked option you write. It is conceptually the same for YM contracts. Each night, your account gets marked to market. Any profit or loss is credited or debited from your account.
So, if you have $5,000 in your account to start, and you enter long (buy) one YM contract during the day, $1,750 is "frozen" in your account. That margin is set aside to cover any loss you may have. You are free to do whatever you want with the remaining $3,250. If your trade makes 50 points in profit and you close it out, the initial margin is released and $250 is credited to your account. If you close the trade at a loss of 50 points, $1,500 is returned back to your account ($1,750 margin less $250 in loss). If you decide to hold the trade overnight, the margin will increase to $3,250 for each contract you hold.
It is a bit different than options
