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> Sorry to mislead you guys about the example of BP and SF. Lets say for almost the same margin
> requirement of another example, the Wheat and Corn. Both Wheat and corn had almost the same
> margin use but yesterday's move, Wheat make a bigger move that corn which Wheat falls $8.50
> compare to corn which is onkt $5 per contract.
> Therefore when you bet wheat, you get a nicer return when you are correct. Which this is what I
> mean by maximizing the margin use. Thanks again for all who respond previously.
First off, that's a 8 1/2 cent move in wheat ($425) vs a 5 cent corn
move ($250). A one day example is rather meaningless.
The performance bond margin requirement is set by the exchange, and is
derived by a fancy math model which strives to assure the margin
requirement exceeds the maximum 1 day move in the futures contract. If
they are correct, there should never be a debit in a futures account.
As a rule of thumb, you can look back over the last 30 trading days (I
forget what the exact number is) and look at the most extreme net
change, figure the dollar amount and that is close to the margin
requirement (kind of like historical volatility). Or to turn it around,
in your corn example the exchange margin requirement is $540 which means
they assume the corn contract is not moving more than 10.8 cents per
day.
The only time you should really get a bigger bang for your margin $, is
when a market increases in volatility. Since the SPAN program looks back
at volatility, it will take a couple days before they increase the
margin requirement. Once they up the margin requirement, all things
should be equal again.
Bottom line is, there really should not be any way to "Maximize use of
Margin" over a long period of time. The Margin requirement will go up
and down with the volatility of the underlying futures contract.
Kevin
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