SPAN Margin
SPAN Margin We’ve had a lot of discussions about futures, future spreads and options on futures lately. As a result, we wanted to take a brief look at how these products are margined. Because futures and futures options have a different regulatory body than equities, the margining system differs.
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SPAN Margin Q: What is SPAN margin? A: SPAN (Standard Portfolio Analysis of Risk) ● Created in 1988 by CME to assess overall risk on a portfolio of futures and futures options ● Is a market simulation based Value at Risk system ● Used on 54 exchanges 2 of 7
SPAN Margin Q: What are the benefits of SPAN? A: Because SPAN is a risk based margin system, it allows for potential margin relief, giving the trader the best capital efficiency across futures products.
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SPAN Margin Q: What are SPAN objectives? A: To assess the total risk of a portfolio by calculating max loss based on margin requirements set by the exchange or broker, which is allowed to set higher requirements based on their risk tolerance. This is accomplished by simulating potential market moves and calculating the P/L on each contract based on those market moves. 4 of 7
SPAN Margin Q: What is the basic methodology of SPAN? A: SPAN uses “scenarios” to assess risk. These are referred to SPAN risk arrays. Each scenario represents a different change in the underlying and changes in volatility. The risk array with the greatest potential loss becomes the margin requirement. 5 of 7
SPAN Margin Q Where can I see the SPAN margining being calculated on TOS? A The CME uses 16 SPAN risk arrays (price slices). This can be seen by clicking on the ‘BP Effect,’ or ‘Margin Required’ of the future. This displays the margin required/BP Effect at the various prices. The highest number represents the current margin. 6 of 7
SPAN Margin Here are 16 Risk Arrays or price slices for the /ESU4. Current margin is $5060. Each slice represents up or down a specified %.
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SPAN Margin DISCLAIMER: The purpose of this material is to demonstrate market trading techniques and strategies designed to give you the skills and confidence to manage your own investments. The risk of loss in trading securi<es, op
1 of 7
SPAN Margin Q: What is SPAN margin? A: SPAN (Standard Portfolio Analysis of Risk) ● Created in 1988 by CME to assess overall risk on a portfolio of futures and futures options ● Is a market simulation based Value at Risk system ● Used on 54 exchanges 2 of 7
SPAN Margin Q: What are the benefits of SPAN? A: Because SPAN is a risk based margin system, it allows for potential margin relief, giving the trader the best capital efficiency across futures products.
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SPAN Margin Q: What are SPAN objectives? A: To assess the total risk of a portfolio by calculating max loss based on margin requirements set by the exchange or broker, which is allowed to set higher requirements based on their risk tolerance. This is accomplished by simulating potential market moves and calculating the P/L on each contract based on those market moves. 4 of 7
SPAN Margin Q: What is the basic methodology of SPAN? A: SPAN uses “scenarios” to assess risk. These are referred to SPAN risk arrays. Each scenario represents a different change in the underlying and changes in volatility. The risk array with the greatest potential loss becomes the margin requirement. 5 of 7
SPAN Margin Q Where can I see the SPAN margining being calculated on TOS? A The CME uses 16 SPAN risk arrays (price slices). This can be seen by clicking on the ‘BP Effect,’ or ‘Margin Required’ of the future. This displays the margin required/BP Effect at the various prices. The highest number represents the current margin. 6 of 7
SPAN Margin Here are 16 Risk Arrays or price slices for the /ESU4. Current margin is $5060. Each slice represents up or down a specified %.
7 of 7
SPAN Margin DISCLAIMER: The purpose of this material is to demonstrate market trading techniques and strategies designed to give you the skills and confidence to manage your own investments. The risk of loss in trading securi<es, op
