What are the Requirements for Day Trading Margins?

Margin is a term used in the stock and futures trading community, and refers to a performance bond rather than the full amount being traded. United States exchanges permit reduced margins for traders who enter and exit the market on the same day, called day trading margins. Futures brokers may, but are not required to, allow their day trading clients to post only day trading margins. These margins are approximately half of the regular overnight margins. Other countries may have different margin requirements and/or rules that do not permit reduced day trading margins.

The trader is responsible for any losses he may incur, whether or not they exceed the amount of margin he has posted, and whether or not he has sufficient funds in his account to cover the losses. Day trading margins in futures can be a much smaller fraction of the traded value than in the stock market. For instance, day trading margins on ten year US treasury bonds are often under $1,000 US dollars (USD) per contract, and each contract has a face value of $100,000 USD. The $25,000 USD the stock trader needs to post to trade $100,000 USD of stocks will allow him to trade $2.5 million USD of ten year US treasury bonds.

Many US futures brokerages accept as little as $5,000 USD to open a futures trading account in which the trader can use day trading margins. The broker has broad discretion in deciding what trading activity qualifies for day trading margins. Many brokerages define a day-trade as any trade that is opened and closed during regular US trading hours. The actual amount of margin required for each contract is set by the exchange and is based on the volatility and risk of the instrument being traded. For an up to date listing of US regular margin requirements, the CME Group is a good resource.

Day trading in the stock market differs from day trading in the futures markets. The US Securities and Exchange Commission (SEC) defines a pattern day trader as one who executes four or more trades in five business days in a margin account and that is more than 6% of his trading activity for the five days. Day trading margins must meet the SEC requirement of at least $25,000 USD. The maximum leverage for a stock day trader is four to one: he can trade up to $100,000 USD worth of stocks on his $25,000 USD minimum account.