Stock Indices -Trade Sizes and Margin Requirements

The unit for trading stock indices is an index. Each stock index will also have its own currency depending on its country. Below we see the currency associated with each of the major indices.

Stock Indices Futures

 

Instrument Country Currency
S&P500 US USD
NASDAQ 100 US USD
DJ 30 US USD
CAC 40 France EUR
DAX 30 Germany EUR
FTSE 100 UK GBP
NIKKEI 225 Japan JPY

So if we are buying or selling a US index it will be priced in US Dollars. The FTSE will be priced in Pound Sterling. The CAC and DAX will be priced in Euro. And the NIKKEI will be priced in Japanese Yen.

So as we should know by now when we are buying and selling instruments using leverage we do not need the full amount of the position in our balance. Instead, we only require a portion of the total value known as the margin requirement i.e. the amount we put down so we can open the full position size.

Let’s take an example using the S&P 500. So say we want to buy just 1 index of the S&P. The current price is 1645.75. So without leverage we would have to pay $1,645.75to open this position. However, say we have access to 200:1 leverage on the S&P that means we only need 0.5% of this. So, in this case, our margin requirement will be just $8.23.

Trade Type Buy
Instrument S&P 500
Trade Size 1 Index
Current Market Price $1,645.75
Cost of Trade without Leverage $1,645.75
Margin Requirements (Leverage) 0.5% (200:1)
Used Margin for Trade $8.23

If we had a trading account in a different currency denomination then this $8.23 would be converted to our currency at the current exchange rate.

Let’s look at another example taking the DAX 30. Say we wanted to short sell 10 indexes of the DAX as we believe German equities will fall in value. The current price is €8,549.50. So without leverage, the price of this position would be €85,495.00. But if our broker offers us leverage of 50:1 on the DAX we only need to put down 2% of that as a margin requirement to open the position.

Therefore, for a position of 10 indexes, we only require a margin of €1,709.90.[/vc_column_text]

[su_table]

Trade Type Sell
Instrument DAX 30
Trade Size 10 Indexes
Current Market Price €8,549.50
Cost of Trade without Leverage €85,495.00
Margin Requirement (Leverage) 2% (50:1)
Used Margin for Trade €1,709.90

Again, if we had a trading account in a different currency denomination then this $51.91 would be converted to our currency at the current exchange rate.