Adjusting Margin and Risk – Tips and Tricks to Reduce Margin Requirements and Alleviate Margin Calls : [PDF Download]

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“Ideally, margin call avoidance is preferable, but even the most responsible traders will encounter the dilemma eventually. Rather than throwing in the towel and liquidating positions, or adding money to an already expensive market error, there is an unlimited number of ways to manipulate the exchange required margin by reducing the inherent risk of the trade.

Naturally, lower risk equates to lower margin and in most cases lower profit potential, but for those who find themselves in a dire margin situation, beggars can’t be choosers. Before we delve into the details of adjusting margin requirements via position adjustments, we must first understand the mechanics of margin in a futures and options account.

Futures margin is straightforward in that there is a concrete initial and maintenance margin requirement. The exchange will adjust these requirements from time to time, but for the most part they are straight forward.

Conversely, futures exchanges use a portfolio margining system known as SPAN to assess requirements in accounts that are holding option spreads or a combination of futures and options. For these traders, margin requirements are dynamic and are changing constantly.

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