Of the 120 questions on the Series 3 exam, you can expect around 15 on margins, premiums, limits, settlements, delivery, exercise and assignment.
One of the reasons the futures market is so attractive to small investors, is its less stringent borrowing requirements. Margin requirements on futures exchanges are not nearly as high as those in the stock market, and even the individual investor can participate. In fact, futures margins are typically 10 to 20% of a contract's value, as opposed to the 50% currently required for a stock transaction. It behooves the licensed futures trader, then, to be aware of the rules governing margin and their implication for the broader economy.
There is a fundamental difference between futures margins and the margins associated with stocks and other securities; in the stock market, margin represents partial payment, but in the futures market, margin serves as a performance bond. Because this bond is payable and renewable on a daily basis, it need only cover the anticipated change over the course of one day in the value of the associated futures contracts (marking to market).
Futures margins are generally expressed as dollar values per contract, rather than as the percentage familiar to stock traders.
The amount an investor must have on deposit in her account is the "initial margin."
Once she posts her initial margin and begins trading, she must maintain a minimum balance known as "maintenance margin." If her balance falls below that level, she will receive a "margin call" requiring her to add money to the account or else it will be closed.
SEE: The Dreaded Margin Call
"Margin agreements" are documents of understanding between a brokerage and its client. They specify how and when the firm expects margin calls to be met. While some brokerages may simply require that an investor send a personal check via regular mail, others may stipulate wire transfers or some other same-day transaction. They may also require the security of a cashier's or certified check. This portion of a margin agreement is sometimes called a "transfer of funds agreement." Margin agreements also state the procedures by which the brokerage can liquidate an investor's positions and close an account, if a margin call is not met.
InvestingWhen an investor buys on margin, he or she pays a portion of the stock price – called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for ...
InvestingInitial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
Financial AdvisorInvesting on margin can be profitable but it's a risky play that needs care.
Financial AdvisorFind out why a margin call is so important to investors.
InvestingFind out how it provides futures and commodity option strategists with more bang for their margin buck!
TradingBuying on margin is a good option if you don't have the cash to day trade.
InvestingAn underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
InvestingMargin loans, futures and ETF options can all mean better returns, but which one should you pick?