You are here: HomeFuturesTrading and MarginingWhat are the Risks Futures Positions are Exposed to? Which Risks are Inherent in the Daily Offsetting of Profits and Losses?

What are the Risks Futures Positions are Exposed to? Which Risks are Inherent in the Daily Offsetting of Profits and Losses?

Owing to the margin requirement, which is low compared to the contract size, there is a risk of excessive exposure.

Unfortunately, the leverage created by the lower amount of capital invested also has an effect when losses are incurred.

Leverage

Assume, you have EUR 120,000. You could buy shares with that or enter into ten DAX futures positions, for which you would have to pledge a margin of EUR 12,000 (Margin requirement for this example) per contract. The ten contracts, however, would correspond to a DAX equity portfolio of EUR 1,575,000 (10 x DAX-Future contract price 6,000 x EUR 25 index multiplier) and that’s how they perform as well.

Losses may significantly exceed the collateral originally provided. Additional collateral must be furnished immediately for any losses incurred, even if prices start to trend more favorably on the following day.

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If losses cannot be paid in cash immediately, there is a risk that the contracts may be closed out involuntarily.

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