What does Initial Margin Requirement and Maintenance Requirement mean?
In finance, the initial margin requirement is the amount that must placed in collateral in order to open a position. This requirement can come from regulators, the exchange or the broker.
The amount required to be kept in collateral until the position is closed is called maintenance requirement, and it not necessarily the same amount as the initial margin requirement. Generally, the maintenance requirement is smaller than the initial margin requirement. A maintenance requirement equal to the initial margin requirement is typically only set for especially risky instruments.
Options: What does Intrinsic Value mean?
The profit, if any, that would be gained if the option was exercised at its current price.
Futures: What does Limit Down mean?
A situation where the price of the futures contract moves down to the lower daily price limit.
Futures: What does Limit Move mean?
A situation where the price of a futures contract hits the upper or lower daily price limit.
What does Limit Order mean?
A limit order is an order to buy or sell an instrument (e.g. security, option or futures contract) that specifies the maximum price to pay or the minimum price to receive.
Futures: What does Limit Up mean?
A situation where the price of the futures contract moves down to the upper daily price limit.
What does Long or Long Position mean?
The buying of an asset (security, commodity, currency or similar) with the expectation that the asset will rise in value. Long position is the opposite of short position, which is the sale of a borrowed asset with the expectation that the asset will fall in value and thus be cheaper to replace when it is time to give it back to its owner.
Example of long position: You buy shares in Apple with the expectation that they will rise in value. You are now “long Apple” / “has a long position in Apple”.
What does Long Hedge mean?
When an investor takes a long position in futures contracts to hedge against future price volatility, this is called a long hedge. Long hedging is common among companies that knows that they will need to purchase a certain asset in the future and wants to lock the purchase price now.
Example: It is January and Company A knows that it will need to buy 10,000 kilograms of zinc to manufacture roof material in order to fulfill a contract. The roof material must be delivered in August and Company A wants to buy the zinc in May. In this situation, Company A can hedge against future price volatility by purchasing zinc futures in January that expires in May.
What does Margin mean?
In finance, a margin is collateral deposited by the holder of a financial instrument to cover some or all of the credit risk of their counterpart. The counterpart is usually a broker, clearinghouse or exchange. The collateral is deposited into a margin account. Collateral can come in any form accepted by the counterpart, but is usually cash or securities.
The credit risk can arise in several different ways. The holder can for instance have borrowed cash from the counterpart to purchase financial instruments, sold financial instruments short or entered into a derivative contract.
What does Margin Call mean?
A margin call is a request (typically from a broker, clearinghouse or exchange) for the holder of a security to add additional funds to cover losses on an outstanding open position.
A margin call is made when the collateral posted in the margin account is less than the minimum margin requirement. The holder of the security can chose between increasing collateral or closing the position. If the holder fails to act, the position can be closed anyway by the broker / clearinghouse / exchange.
The reason behind a margin call is often a change in market value of the asset used as collateral. It can also be caused by an increased margin requirement, e.g. due to legislation or increased volatility.
What does Mark To Market mean?
- In accounting, the practice of recording the value of an asset to reflect its current market value (instead of its book value) is called mark to market (MTM).
- When a mutual fund’s net asset value (NAV) is calculated based on the most current market valuation, this is called mark to market (MTM).
What does Market On Close (M.O.C.) Order mean?
If you want your order to be executed as close to the end of the market day as possible, you place a Market On Close Order (also known as an at-the-close order).
By placing this type of order, you leave it up to the trader to decide exactly how late in the day the execution will take place.
Many exchanges have rules for how late MOC orders can be submitted. At the New York Stock Exchange MOC orders must be submitted by 15:45, while Nasdaq permits submission of MOC orders until 3:50 EST. After that time, MOC orders can not be submitted, canceled or modified.