Maximum loss in a futures trade?

[satintrade]

Hey guys,

I'm a beginner in Futures Trading and had this basic question

When you initiate a Futures trade, you require an Initial Margin amount which is a sum of (Span Margin/Maintenance Margin + Exposure Margin)

Lets say the trade you make goes in the opposite direction as you intended, what is the maximum amount you can lose?

Would the max amount you lose be the exposure margin after which you would get a 'margin call' from your broker?

 

[newtrader101]

Its the same as in trading stocks. Only in futures it is lot size which may be 250, 500, 1000 etc. for different futures.

You only trade in lots in futures. In stocks you can decide the quantity, in futures you can only decide the number of lots you want to trade.

So if you're trading a future which has lot size of 1000, total loss/gain for one lot =1000 x price movement. If you traded 2 lots, it is 2 x 1000 x price movement.

The margins are the amount that you need in your account in order to be able to trade a future. It is different for intraday and NRML (NRML is when you do not square off at EOD.)

Also most brokers will autosquare off your position if the value of your position decreases to 70% or less of the value at the traded time. That is if you shorted 1 lot of a future (1000 lot size) at 100 Rs., then
Position Value at traded time= 1000 x 100=100,000.
70% of this=70000.
So tolerated loss = 30000
When the loss becomes 100000+30000=130000 or higher (that is price rises to 130 or higher), your position will be auto squared off.
Traders don't wait for this, that is why you need Stop loss.

I hope I'm not misleading. If something in the above explanation needs to be corrected, all are welcome to do so.