Futures Trading Risk Management
1. Futures Trading
In order to trade futures products at uSmart Securities Ltd, clients must firstly open a futures account and deposit funds. The net available funds (or current equity level) in futures account must be equal to or greater than the initial margin requirement in order to open new position. uSmart Securities Ltd only accepts cash as margin and does not accept any non‑cash collateral.
2. Margin Requirements for Futures Trading uSmart Securities Ltd
The stock exchange will impose margin requirements for clients to trade futures products, the margin requirement required by stock exchange can be classified as an initial margin requirement and a maintenance margin requirement. Initial margin is the minimum amount required for a client to open a new position while maintenance margin requirement represents the threshold to initiate a margin call to the client. When a client’s net available funds (or current equity level) fall below maintenance margin requirement level, the client must deposit cash in order to increase margin level back to initial margin requirement level within a specified time, otherwise, his account will be forced liquidated. uSmart Securities Ltd reserves the right to set higher margin requirements based on individual client circumstances without any prior notice.
uSmart Securities Ltd applies an additional 10% on top of the exchange’s margin requirements. uSmart Securities reserves the right to adjust initial margin and maintenance margin requirement in response to market conditions without any prior notice.
- Initial margin requirement = Initial margin requirement by stock exchange × 110%
- Maintenance margin requirement = Maintenance margin requirement by stock exchange × 110%
Example: HSI Hang Seng Index Futures Contract
- Initial margin requirement by HK stock exchange = HKD 117,239
- Maintenance margin requirement by HK stock exchange = HKD 93,791
uSmart Securities Ltd Initial Margin requirement = HKD 117,239 × 110% = HKD 128,962.9
uSmart Securities Ltd Maintenance Margin requirement = HKD 93,791 × 110% = HKD 103,170.1
In order to long one Hang Seng Index futures contract at uSmart Securities Ltd, a client must deposit an initial margin of HKD 128,962.9 to open the position. If Hang Seng Index futures contract price falls, the client’s net available funds (or current equity level) will decrease. When the net available funds (or current equity level) drops below the maintenance margin of HKD 103,170.1, the client must top up net available funds (or current equity level) back to Initial Margin requirement HKD 128,962.9 or higher within one business day from the time the margin call is issued; otherwise, a forced liquidation will be triggered.
3. Comparison of Margin Level for Hong Kong Futures and Global Futures Products
Hong Kong stock exchange and global stock exchange has put different margin requirements for their futures products.
- Hong Kong futures products
Maintenance Margin requirement / Initial Margin requirement = 80%
(or Initial Margin requirement / Maintenance Margin requirement = 125%)
- Global futures products
Maintenance Margin requirement / Initial Margin requirement = 91%
(or Initial Margin requirement / Maintenance Margin requirement = 110%)
4. Client’s account risk level monitoring
uSmart Securities Ltd will monitor clients’ account risk level using “Initial Margin Risk Level” and “Maintenance Margin Risk Level”. When a client’s “Initial Margin Risk Level” or “Maintenance Margin Risk Level” exceeds a specific threshold, the client will be subject to a margin call or forced liquidation.
Specifically:
- When “Maintenance Margin Risk Level” ≥ 100%, the client will receive a margin call.
- When “Initial Margin Risk Level” ≥ 200%, the client will be forced liquidated.
where
“Maintenance Margin Risk Level” = (Maintenance margin + Frozen funds – Market value of short options) / Current equity level
“Initial Margin Risk Level” = (Initial margin + Frozen funds – Market value of short options) / Current equity level
5. Margin Call and Forced Liquidation Process by uSmart Securities Ltd
(1) Margin Call (“Maintenance Margin Risk Level” ≥ 100%)
Clients will receive a margin call when his “Maintenance Margin Risk Level” reaches or exceeds 100%. A margin call notification will be sent to the client’s registered email. The client must deposit the required margin amount or close out positions on its own within one business day of issuing the margin call. If the client fails to deposit the required margin within the specified time, the client’s account will be forced liquidated.
(2) Forced Liquidation (“Initial Margin Risk Level” ≥ 200%)
Clients will be subject to Forced liquidation when his “Initial Margin Risk Level” reaches or exceeds 200%. A forced liquidation notice will be sent to the client’s registered email. When this threshold is reached, the client’s account will be automatically forced liquidated by the system.
When the risk level of an account increases, the client may receive relevant risk alerts. If the account equity is insufficient to meet the applicable margin requirements of the Company, the exchange or the clearing house from time to time, the Company shall have the right to take risk control measures in respect of the relevant positions without prior notice, including but not limited to restricting the opening of new positions, requiring additional margin, or liquidating positions. The actual arrangements shall be subject to the Company's then applicable risk management policies and system processing. The above example is for illustrative purposes only. Whether a client is able to open a position in practice may also be subject to factors such as product risk parameters, contract months, market conditions, trading hours, system settings, and the Company's risk control requirements as applicable from time to time.
The information on this page is for general reference only and does not constitute any offer, solicitation, recommendation or investment advice. Futures contracts are leveraged products involving significant risks and are not suitable for all investors. The Company may adjust the applicable fees, margin requirements, risk controls, available products and service arrangements from time to time without prior notice. Actual arrangements are subject to the trading platform display, the client's account status and the Company's final determination.
