Although, trading is a complicated business and requires a lot of effort and time. Even an experienced investor can sometimes face so many problems for smooth trading. Here the question that arises, most of the time in almost everyone’s mind is, that how much a future trader costs.
To answer this question is quite difficult as this is like a variable term. Moreover, future trading works a little differently. It operates in a way that when a future contractor bought some stuff it has a very high price after he sells it to a trader he gets profit on it, which is actually its initial margin.
In other words, the future trader earning based on margins. Higher the cost of the stuff, higher will be the margin. It depends on the Leverage involved. This Leverage can amplify profits and loss. Therefore, to avoid situations of great loss there is a need to keep track on a few things.
There are two main things to keep track on the first, in order to open an account with a futures broker it is necessary to know exactly the requirement of broker for deposit. Because sometimes a future brokers offer an account with less deposit usually up to $500 but in many cases, the brokers offer a huge deposit up to $10,000.
Other than that, the second case is many future contractors offer less Leverage, means they have small sized-contracts, therefore offer low margins. The minimum margin that they offer is up to $200 to $400. Which shows that they have less profit.
This whole discussion concluded that the cost depends on the margin if you want to become a futures trader. This question might arise in your head. Here are two main types of margins that probably works in the best way.
In the initial margin, a trader, need to put some amount in futures account in order to avoid any unnecessary condition. Then this amount is maintained by exchanges and the trader gets the valuable amount of the contract.
In other words, a future broker implies his margin first on each contract before selling it to any trader. That entire amount which gets on each contract is his profit. It will become a handsome amount after calculations.
This type of margin appears in order to keep the trader amount in the account to exchange in the price of the contract. Therefore, it is not much costly as compared to the initial margin. For example, if the maintenance margin is $4000 and a trader bought a contract, then the price drops to $2. Means the actual price of the contract become $2000.
This is the working of the maintenance margin therefore in this type there exist less profit. However, if the trader does not meet the margin call then the broker could cancel the position.
Falling Down of Margin
This is something very important to keep in mind before future trading, if you fall down your requirement of margin then the trading will not work in the way you wish it to do so. If your margin falls down then you will have less time to make it up to meet the actual requirement. However, if you could not meet up the requirement as well then the broker has a right to close the position on your behalf, locking loss?
In addition, you will only leave with loss nothing else. It is the responsibility of an investor as well to understand the requirements of the margin otherwise, there is no other option else than to cope with the loss.
Types of fees involved in future trading
The types of fees that mainly involve for future trading are of course on the top the brokerage fees, the settlement fees, and the clearance fees. The brokerage fee is not a fixed value although it varies with respect to the contract. Other than that, most of the brokers calculate the charging fee in a different way, which is another reason for a variable cost.
Some might charge on a percentage basis, some charge flat fee and some might charge on the size of the order. Therefore, in each case, the cost is different depending on the method of charging a fee. Next comes the settlement fee and then the clearance fee. Both these also vary according to the size and requirement of the contractor.
The minimum requirement for Future Trading
Although, there is no such appropriate or legal requirement for future trading. However, one must have enough amount to cover all the expenses of trading. This is the only way to become the best trader. As the profit and loss is just the part of futures trading, so the amount to overcome such situation is necessary.
In addition, the other requirement is to have a proper strategy and planning. To become a successful trader you should take every step wisely and carefully. This is the only way to become successful.
This article showed that the exact cost for future trading is almost unknown. Although, it depends on the margin. The future broker sets the margins according to his desire depending on the contract. The other thing to be a futures trader is to have a suitable amount of money to overcome every expense of the trading. Moreover, the key is to be wise and have a proper strategy.