MTM Margin Loss

[hitesh.trade]

Dear Friends,

I had a question that assume if i buy Gold of 20 Lakhs at Rs. 1870 Per Gram i have to pay the broker 5% as margin that is One Lakh.

Assume the deal is done.

Now assume after 2 or 3 days the Gold Price gets reduced by 70/- Rupees per gram and as a result the broker calls me to pay the MTM Margin. Now my question is how much MTM Margin i have to pay the broker so that the deal is not squared of by him.

Will appreciate your valuable reply.

Regards,

Hitesh.

 

[sr114]

you have to pay the MTM loss portion so that the 5 % margin remains intact. better go for 10 or 15% margin. it will help you in sudden reversal.
SR114

 

[hitesh.trade]

Dear sr114,

I have to pay 70 Rs/- Per gram as MTM Margin or 5% of 70 Rs/- Per Gram as MTM Margin?

Can u please tell me the amount.

 

[Placebo]

There are two types of margins

1. Initial Margin - To open up a trade.

If a particular percentage of it gets exhausted in MTM losses the trader has to deposit some more money.

2. This is known as Maintenance Margin

You said that there is a loss of 70 pips on net basis for 2-3 days.

MTM is calculated in a different way and calculations are not like cash market deals.

What was the price at which you purchased gold ? Opening Price ?


MTM Value = Closing Price The Same Day - Opening Price = MTM P/L

Day 2 - Current Day Closing Price - Yesterday's Closing Price = MTM P/L

Day 3 - Current Day Closing Price - Yesterday's Closing Price = MTM P/L

The same procedure is followed till the number of days the financial asset is held. See how much money is gained/lost in the transaction and then decide if you want to deposit more margin money

Hope This Helps

Cheers

 

[hitesh.trade]

Thanks For a detailed Explanation.

 

[hitesh.trade]

Hi Placebo?

Can give one example of your explanation.

 

[iGuru]

Hi Hitesh,

1st of all I would like to clear one thing w.r.t Gold Future is that a trader can trade in 3 different types of Gold futures in MCX:

Gold Guinea, where 1 lot = 8 gms

Gold Mini, where 1 lot = 100 gms

Gold (Standard or HNI), where 1 lot = 1 kg (i.e. 1000 gms)

So, as per your question You buy 1 lot of Gold @ Rs. 1870 per gram and after 2-3 days the price of Gold get reduced by Rs. 70 (i.e. Rs. 1800), your MTM position will be:

For,

Gold Guinea: Price Movement of Rs. 1 in the Gold Guinea price will give you Gain/Loss of Rs. 1
[ Lot size of 8 gms & price quotation of 8 gms. So, 8/8 = Rs. 1 ]
So your MTM position will be here, 70 x 1 = Rs. 70 per Lot

Gold Mini: Price Movement of Rs. 1 in the Gold Mini price will give you Gain/Loss of Rs. 10
[ Lot size of 100 gms & price quotation of 10 gms. So, 100/10 = Rs. 10 ]
So your MTM position will be here, 70 x 10 = Rs. 700 per Lot

Gold: Price Movement of Rs. 1 in the Gold Standard price will give you Gain/Loss of Rs. 100
[ Lot size of 1000 gms & price quotation of 10 gms. So, 1000/10 = Rs. 100 ]
So your MTM position will be here, 70 x 100 = Rs. 7000 per Lot


M2M is calculated on daily basis by the exchange/broker:

Assuming you buys a Gold Standard on Monday @ 18700 during market hours & that day closing is @ 18750. On Tuesday Gold closes @ 18700, on Wednesday @ 18680, Thursday @ 18630, Friday you sold the Gold @ 18720. Then your daily MTM will be calculated as per this:

Buy Price Sell Price Closing Price Difference MTM
Monday 18,700 18,750 50 [ 18750 - 18700 ] 5,000
Tuesday 18,700 -50 [ 18700 - 18750 ] -5,000
Wednesday 18,680 -20 [ 18680 - 18700 ] -2,000
Thursday 18,630 -50 [ 18630 - 18680 ] -5,000
Friday 18,720 18,720 90 [ 18720 - 18630 ] 9,000
Actual Gross Gain / Loss in Rs. 2,000


As a friend, I will always advice you to maintain extra buffer for MTM while trading.
While trading I always trade on the basis of this if the margin for Gold standard is Rs. 80,000 per lot, then I maintain a buffer of 50% of the margin (i.e. Rs. 40,000) or I keep capital of 1.5 times of any margin amount required to trade a commodity. (i.e. Rs. 80,000 x 1.5 = Rs. 1,20,000)

 

[hitesh.trade]

Thanks iGuru for a detailed reply.