How to use Margin Calculator to Simulate Profits on Futures Position

    Priya Negi

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    As a trader the strategy you use determines scope of profits on futures position. Before locking margin amount for profits in futures, you might be interested to envisage and estimate. The margin payable on a lot of futures is interlinked to numerous factors. Estimates from a commodity margin calculator are useful when trading in commodities, in intraday, and for future.

    Explain Commodity Margin?

    Commodity margin is the least amount you should have when buying or selling in commodity options. A trader must remember that commodity trading denotes a future purview. Profits and prices are interlinked to options in the long term. As a trader you might want to reduce risk in the long run. Commodity trading adds to the trading portfolio for diversification. Reduced risks and diversified portfolio in turn augment the upside prospective.

    How is Commodity Margin calculated?

    While calculating commodity margin one has to know the meaning of initial and maintenance margin. Minimum amount to have as reserve in the trading account for commodity trading is the initial margin. Additional amount subsequently contributed for maintenance of the initial margin is maintenance margin. Initial margin is about 50% and maintenance about 25% of the initial as per rules. This could fluctuate depending on the firm that helps you trade on commodities. Commodity margin calculator of most brokerage firms is an online tool that estimates the margin of span, and exposure. The rate of margin for futures is fixed by exchanges and not brokers. Margins are low for futures and vary from 3 to 12 per cent of contract value.

    Explain MCX and its Benefits?

    Multi Commodity Exchange of India Ltd., (MCX) works within the realm of SEBI (Securities and Exchange Board of India).  It operates like BSE or NSE and offers commodities derivative contract across diverse sectors. The benefits an investor can expect are transparency, diversification of portfolio, and liquidity.  You can plan ahead with MCX margin calculator and estimate margin for trading in MCX commodities. This includes a calculation of the margin for carry forward commodity trading and intraday transactions in commodities.

    How can I assess accuracy of hypothetical profits on Futures Position with a margin calculator?

    A futures trader should precisely know the degree of risk and payback expected for the assumed trade monetarily.

    Some common instructions you would have to bear in mind are:

    ¨ Estimate and manage risk precisely and commendably.

    ¨ Have a profit earning mind-set, and improve your trading tactics.

    ¨ Trade on a moderate frequency.

    ¨ The trading platform for futures trading should be efficient.

    Financial returns are the greatest motivation for a futures trader. Depending in the future contract the margin varies as it is linked with volatility. Here the margin calculator helps as it has a sophisticated context and it simple to use. An investor should be aware of how each market trading varies in price movement and size. Profit depends on the size of contract, present trading price, and tick size. Margins are modified based on market volatility.

    To illustrate let us assume a single contract of COMEX gold future at 3500, at 100 ounces of Gold. The margins were 4400 INR, and selling at 3505.  The profit is 500 INR for a contract. The profit is nearly 11 per cent. Margins are considered as the joining point in a future market that brings buyers and sellers together. It boosts confidence in trading. Intraday trading in commodities and trading is easier with MCX margin calculator.This is so because of the comprehensive information on each market that is made available.

    NSE F&O margin calculator gives the Value at Risk (VAR) margin. Price trends from past data is analysed to give predictions on loss. Margin calculators have functionalists that are versatile. A contractor can decide on a contract based on the date of expiry. A calendar spread is a strategy where a particular month’s contract is bought. Another month contract is simultaneously sold to reduce risks.  

    To conclude, margin calculator increases accuracy in simulating profits on futures. Here the item’s monetary proceeds are estimated with the cost and profit margin desired. The margin is the cost, and the revenue and profit can be generated. Happy trading!