Explanation of byMarket Mode
Explanation of byContract Mode
Explanation of byAccount Mode
Explanation of byAccountDay Mode
Explanation of byPortfolio Mode
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Explanation of byContract Mode1. Settings: Max Position settings are applied to each contract individually. Long and short positions contribute to a single limit, so a limit of 10 will allow for +7 Dec and -3 Jan. All positions use the numbers placed in the Outrights and Strategies sections in tandem since all spreads are broken into their constituent legs. The Account section places a limit on the total position across all contracts. 2. Explanation: A contract is a family of markets. For example, Silver Futures (SI) would be a contract consisting of every outright silver future and every silver future spread. Silver Options (SO) would be a separate contract with separate limits. Note that any option group with a different contract code will have separate limits, so Silver Week 1 Options (SO1), Week 2 (SO2), etc. will all have separate limits. This means an account with a Max Position of 1 for Outrights can buy 1 SI Future, buy 1 SO option, buy 1 SO1 option, etc. without violating the position limit. The values for Outrights and Strategies are used in tandem in this mode because all strategies are broken into their constituent legs. This means that an account with an Outright limit of 10 and a Strategies limit of 20 will only be able to do 5 Dec-Jan spreads, not 20, because the 5 Dec outrights plus the 5 Jan outrights puts the account at the Outright limit of 10. If that same account had an Account setting of 50, then the position of 5 Dec-Jan spreads could only be done in 5 different contracts (i.e. Silver, Gold, Crude, Nat Gas, and RBOB) before no more positions could be added anywhere.
Explanation of byAccount Mode 1. Settings: Max Position settings are applied to the account as a whole. Long and short positions contribute to separate limits, so a limit of 10 will allow for +10 Dec, -3 Jan, and -7 Feb. All positions use the numbers placed in the Outrights and Strategies sections in tandem since all spreads are broken into their constituent legs. The Account section places a limit on the total position across all contracts. 2. Explanation: The values for Outrights and Strategies are used in tandem in this mode because all strategies are broken into their constituent legs. This means that an account with an Outright limit of 10 and a Strategies limit of 20 will only be able to do 10 Dec-Jan spreads, not 20, because the 10 Dec long outrights hit the long Outright limit of 10, while the short 10 Jan outrights hit the short Outright limit of 10. If that same account had an Account setting of 50, then the position of 5 Dec-Jan spreads could only be done in 5 different contracts (i.e. Silver, Gold, Crude, Nat Gas, and RBOB) before no more positions could be added anywhere.
Explanation of byAccountDay Mode 1. Settings: Identical to byAccount Mode except that only current day positions are considered. Any positions from previous trading sessions are ignored. 2. Explanation: This mode allows for daily position limits but it does not limit how large the position can become over time. If an account starts with no position and has a limit of 10, then the account can buy 10 in one market and sell 10 in any other market. The next day, since those positions are ignored, the account can buy 10 more in the first market and sell 10 more in the second market.
Explanation of byPortfolio Mode 1. Settings: Max Position settings are applied to each market individually. Outright markets use the number placed in the Outrights section, while spreads use the number placed in the Strategies section. Note that since spreads are immediately broken into legs once filled, the Strategies limit will only impact how many contracts can be worked at one time in a give spread. The Account section is not used in this mode, so there is no limit on the total position in this mode. 2. Explanation: The purpose of byPortfolio Mode is to use multiple "what if" scenarios to create an accurate, real-time margin number for the account. The primary focus is on the margin requirement for the portfolio as a whole, but position limits can still be added as an additional risk protection mechanism. For example, a position limit of 100 for options would look at 100 0.01 delta options the same as 100 1.00 delta options, while the risk in terms of equivalent futures is 1 future vs 100 futures. With byPortfolio mode, a separate delta limit can be set that only allows, say, the equivalent of 10 futures of exposure. In this case, 1,000 0.01 delta options would look the same as 10 1.00 delta options, since they both result in 10 futures' worth of delta exposure.
Explanation of byAccount Mode 1. Futures and Options: All positions are viewed as outrights on the front end, but the back end looks for all possible ways to arrange those outrights into spreads. Spread margin rates are applied to outright legs that can pair with other outright legs in the following spreads: futures calendars, long futures to long puts or short calls (1:2 ratio, same expiration), short futures to short puts or long calls (1:2 ratio, same expiration), as well as verticals, straddles, and strangles in options. All options in this mode use margin, regardless of whether they are long or short.
Explanation of byAccount Day Mode 1. Futures and Options: Identical to byAccount Mode except that only current day positions are considered. Any positions from previous trading sessions are ignored.
Explanation of byPortfolio Mode 1. The entire position is processed through a matrix of stress tests to determine how much margin is required for the account as a whole. This is designed to produce values very close to exchange margin requirements and is by far the best system for determination of margin that we offer.
Explanation of byContract Mode 1. Position limits are hit by the total number of contracts, regardless of buy or sell side. 2. Spread margin is not applied to futures vs options. 3. Option spread margin is imperfect as it does not account for the delta of the spread. 4. Outright option margin is imperfect as it is a flat rate, regardless of delta.
Explanation of byAccount Mode 1. Futures vs options and option vs option spread margin are imperfect as they do not account for the delta of the spreads. 2. Outright option margin is imperfect as it is a flat rate, regardless of delta.
Explanation of byAccountDay Mode 1. The same risks of byAccount Mode. 2. The account can accumulate a nearly unlimited position over time since previous inventory is ignored.
Explanation of byPortfolio Mode 1. Cross-product margin rates may not be in place for everything, i.e. ES vs NQ. This is still the most accurate mode and offers the best protection for the firm.