Margin and Leverage
Margin System Overview
In January 2011 the Japanese Commodity Clearing House (JCCH) introduced a new margin system for Japanese commodity markets. The system is based on a portfolio risk calculation formula which evaluates the overall risk of all open positions in a client's account to determine the total required margin amount. The calculation is based on parameters that are released monthly by JCCH for Japanese domestic markets. A client's account is updated on a daily basis during the settlement period after the close of the day trading session at 3:30 p.m. JST for Japanese domestic markets. Overseas market positions are updated on business days at 8:30 a.m. (7:30 a.m. summer time). Please see below for an overview of the margin calculation system.
- Total Required Margin
The formula for calculating the total required margin is:Scanned Risk Margin × Additional Required Margin Ratio + Spread Margin + Delivery Margin*Scanned Risk Margin is calculated by a formula designated by the Japan Commodity Clearing House (JCCH) and is a risk calculation based on the total portfolio risk of all open positions held by the client. The parameters for each commodity are released every month by JCCH.Additional Required Margin Ratio is designated by Dot Commodity, Inc.(Generally set at 1 and no additional margin is required in most cases)Spread Margin - If a client holds a spread position in the same commodity, spread margin is required. For example, if a client has a short position and a long position in the same commodity spread margin is required which includes an offset in the required margin amount.*Delivery Margin - Dot Commodity does not provide physical delivery services for any commodity futures contracts at this time.
- Margin Call
If the net asset value of the account falls below the minimum required margin amount as calculated by the overall portfolio risk formula designated by JCCH, the client is required to deposit additional margin into their account. The calculation is done after the close of the day trading session at 3:30 p.m. JST for Japanese domestic market positions and at 8:30 a.m. (7:30 a.m. summer time) for positions on overseas markets. Net Asset Value = Cash Balance ± Realized P/L ± Unrealized P/L If a client receives a margin call, the additional required margin must be received by Dot Commodity by 8:40 a.m. JST on the following business day for Japanese domestic markets and by 5:00 p.m. on the same business day for overseas markets or the client must liquidate all or part of their open position to erase the margin deficit before the deadline. If the additional required margin amount is not received by Dot Commodity by the required deadline or no action is taken by the client during the trading session before the deadline to bring their account into balance then all open positions will be automatically liquidated as a market order in the open market shortly after the deadline has passed.
*Open Positions liquidated during the night session for Japanese domestic markets are settled after the market close of the day trading session the next business day.
- Calculation of Buying Power
The formula is as follows:Net Asset Value - Total Required Margin for Open Positions and Working Orders
- Current Margin Calculation Parameters
Please check the e-Formula trading system information page or Dot’s website for current parameters.
For clients who are using the e-Formula trading system, there is a margin simulation function available to simulate margin requirements for different position scenarios.
When a trader or investor opens a new position in a commodity futures contract by either buying or selling a contract, initial risk margin is required. The initial margin requirement varies by product but the initial amount is generally between 2-20% of the full value of the contract. This leverage allows the trader or investor to take a position with little upfront capital when compared to the full value of the contract and so there is the potential to make large profits or losses.