intrade Margining Examples

Example 1: Worst Case Loss calculation on a short term 0-100 contract with one position.
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10 per point
Position:	Long 200 @ 35
Bid Risk =	200 * (0-35) * $0.10 = -$700
Ask Risk =	200 * (100-35) * $0.10 = $1,300
In these circumstances, the worst case loss is incurred at the contract's minimum price. The margin requirement is -$700.

Example 2: Worst Case Loss calculation on a short term 0-100 contract with one position and one opposite order.
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10 per point
Position:	Long 200 @ 35
Order:	Sell 400 @ 40
Bid Risk =	200 * (0-35) * £0.10 = -$700
Ask Risk =	[200 * (100-35) * $0.10] + [-400 * (100 - 40) * $0.10] = -$1,100
In this example, as the worst case loss is incurred at the contract's maximum price. The margin requirement is $1,100.

Example 3: Risk-Assessed long-term totals contract with a position and an order
Contract:	Dodgers Total Wins 2002 Season
Min Price:	60	Max Price:	162
Tick Size:	1	Tick Value:	$0.10
Margin Rates:	up 6	down 6
Position:	Long 100 @ 78
Order:	Short 250 @ 95
Margin Rate Bid Risk = 100 * -60 ticks * $0.10 = -$600
Margin Rate Ask Risk = (100-250) * 60 ticks * $0.10 = -$900
As in the WCL calculations, the sell order is only used in the calculation where it's inclusion produces higher potential losses i..e. when considering the ask risk.
WCL Bid Risk = 100 * (600-780) * $0.10 = -$1800
WCL Ask Risk = [100 * (1620-780) * $0.10] + [-250 * (1620-950) * $0.10] = -$8350
Note that the worst case loss on the ask risk does not use the buy order as only profits would emerge from the execution of the order.
As the WCL Bid Risk exceeds the Margin Rate Bid Risk, the latter is used. Therefore, the initial margin requirement is the Margin Rate Bid Risk = $900

Example 4: Multiple Risk-Assessed long-term 0-100 contracts.
For Clients Multiple Risk Assessed long-term 0-100 contracts intrade allows a diversification offset to reduce the margin requirement.
Example: (numbers will vary depending on event group)The 2002 NHL Championship Risk Assessed Margin Schedule is as follows;Initial Margin is limited to the margin calculated on the 5 highest Team risks. (The number of contracts used for calculation purposes will depend upon the number of games in an event, the number of competitors and also what stage we are at in the event.)
	Largest	100%
	2nd Largest	100%
	3rd Largest	100%
	4th Largest	100%
	NHL.BLUES	-2000
	NHL.OILERS	-3500
	NHL.SHARKS	-2895
	NHL.SENATORS	-1250
	NHL.MAPLELEAFS	-500
	NHL.RANGERS	-650
	NHL.KINGS	-3600
	NHL.ISLANDERS	-4200
	NHL.BRUINS	-100
	NHL.FIELD	-285
The margin for this position is calculated at -16,195 as follows;
Contract	IM	Schedule	Margin Requirement
NHL.ISLANDERS	-4200	100%	-4200
NHL.KINGS	-3600	100%	-3600
NHL.OILERS	-3500	100%	-3500
NHL.SHARKS	-2895	100%	-2895
NHL.BLUES	-2000	100%	-2000
Total Margin Requirement			-16,195

Example 5: Multiple Risk-Assessed long-term 0-100 contracts, where member has more than one short position
Contract:	Stanley Cup Winner 2002
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10
Margin Rates:	up 7	down 7
Min Margin Price:	0 ticks	Max Margin Price:	100 ticks
Portfolio Position:		Potential Profit	Margin Requirement
-100 NHL Blackhawks @ 9		90	-70
-600 NHL Blues @ 6		360	-420
-100 NHL Bruins @ 8		80	-70
-100 NHL Senators @ 8		80	-70
intrade will select the contract with the highest initial margin requirement, and offset this by the assumed profits from the other positions, given that only one of the teams can settle at 100. In this example, the Blues position has the highest initial margin requirement, -$420, (-600 * 7 ticks * $0.10), which is offset by assumed profits of $250 ($90 + $80 + $80) from the other three positions. Therefore, the initial margin requirement for these positions would be $170. ($420 - $250)

Example 6: Trading Example
25 Feb:	Buy 100 NCAA.Duke @ 32
Min Margin Price:	0	Max Margin Price:	100
Tick Size:	1	Tick Value:	$0.10
Margin Rates:	up 7	down 7
Max Profit:	$680 (68 points)
Max Loss:	$320 (32 points)
Trade Fees:	$4 (100*$0.04)
Initial Margin:	$70 (100 * 7 * $0.10)
26 Feb:	Price of NCAA.Duke rises to 38
Variation Margin:	$60 (100 * [38-32] * $0.10)
27 Feb:	Sell 50 NCAA.Duke @ 42
Trade P&L:	$20 (50 * [42-38] * $0.10)
Trade Fees:	$2 (50 * $0.04)
30 Apr:	NCAA.Duke was marked to market at 72 on 29 Apr
	NCAA.Duke expires @ 100
Expiry P&L:	$140 (50 * [100-72] * $0.10)
Expiry Fees:	$2 (50 * $0.04)

Example 7: Margin Rates calculation on linked Long-Term 0-100 position
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10 per point
Position:	Long 100 LA Lakers @ 67
	Long 50 Utah Jazz @ 3
	Short 20 San Antonio Spurs @ 18
Margin Rates:	down 6	up 4
Bid Risk	= 100 * -6 ticks * $0.10 = -$60 (LA)
	= 50 * -6 ticks * $0.10 = -$30 (Utah)
	= -20 * 4 ticks * $0.10 = -$8 (San Antonio)
Total:		-$98
Therefore, our Initial Margin requirement where we have more than one position in a linked long-term PIX group, is the sum of the individual margin requirements. (constrained by WCL),which in this example is -$98
It should also be noted that in the situation where a member has multiple positions in a long term event group, intrade recognizes that there is a diversification component to holding these positions, and will thus only require members to post margin on a proportion of the number of contracts in that event group, resulting in more cash available to the member for trading. The number of contracts used for calculation purposes will depend upon the number of games in an event, the number of competitors and also what stage we are at in the event. See Margin Rates section of the site for specific details by event.

Example 8: Totals Contract
Contract:	Phillies: Total Wins in MLB Season
Min Margin Price:	Max Margin Price:	162
Margin Rates:	up 6 wins	down 6 wins
Tick Size:	0.1 win	Tick Value:	$0.10 (ie; $1 per win)
Position:	Long 100 @ 95 wins
Margin Rate Bid Risk =		100 * -60 ticks * $0.10 = -$600
Margin Rate Ask Risk =		100 * 60 ticks * $0.10 = $600
Note that the margin rate down uses a negative amount.
WCL Bid Risk =		100 * (0 - 950) * $0.10 = -$3,500
WCL Ask Risk =		100 * (1620 - 950) * $0.10 = $6,700
Clearly as a single long position, losses will be incurred should the price fall i.e. the bid risk will determine the initial margin requirement. The initial margin requirement is $600, as the Margin Rate bid risk is less than the WCL bid risk.

Example 9: Risk-Assessed totals contract with a position only where WCL loss is used instead of the margin rate.
Totals Contract:	Indians: Total Wins in MLB Season
Min Margin Price:		Max Margin Price:
Margin Rates:	up 6 wins	down 6 wins
Tick Size:	0.1 win	Tick Value:	$0.10 (ie; $1 per win)
Position:	Long 100 @ 79 wins
Margin Rate Bid Risk =		100 * -60 ticks * $0.10 = -£600
Margin Rate Ask Risk =		100 * 60 ticks * $0.10 = £600
WCL Bid Risk =		100 * (750 - 790) * $0.10 = -£400
WCL Ask Risk =		100 * (1620 - 790) * $0.10 = £8,300
Again, as this simple position is long, losses are incurred when prices fall. Therefore, the bid risk will determine the initial margin requirement. However, in this case the minimum price "boundary" is just 4 wins lower than the price, less than the margin rate (6 wins). As a result, the initial margin requirement is the lower resulting loss, the WCL bid risk = $400.

Example 10: Margin Rates calculation on a Long-Term 0-100 with one position
L-T PIX contract:	UCLA to Win NCAA
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10 per point
Position:	Long 100 @ 12
Bid Risk =	100 * (0-12) * $0.10 = -$120
Ask Risk =	100 * (100-12) * $0.10 = $880
Margin Rates:	up 4	down 6
Margin Rate Bid Risk =		100 * -6 ticks * $0.10 = -$60
Margin Rate Ask Risk =		100 * 4 ticks * $0.10 = $40
Our margin requirement is therefore -$60

Example 11: Golf - Impact of Withdrawal of Player on the Worst Case Loss Calculation
Linked US Open PIX Contracts:		Nine golfers listed plus the field.
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10 per point
Portfolio:
	Position
Woods to win	Short 1,000 @ 35
Els to win	Short 1,000 @ 15
Field to win	Short 500 @ 25
	The Worst Case Loss Calculation would be:-
Permutation 1: Woods Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (100 - 35) * $0.10] = -$6,500
0-100 Els to Win	[-1,000 * (0 - 15) * $0.10] = $1,500
0-100 Field to Win	[-500 * (0- 25) * $0.10] = $1,250
Profit/Loss for Permutation 1 = -$3,750
Permutation 2: Field Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (0- 35) * $0.10] = $3,500
00-100 Els to Win	[-1,000 * (0- 15) * $0.10] = $1,500
0-100 Field to Win	[-500 * (100- 25) * $0.10] = -$3,750
Profit/Loss for Permutation 2 = $1,250
Permutation 3: Any Other Golfer Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (0- 35) * $0.10] = $3,500
0-100 Els to Win	[-1,000 * (0- 15) * $0.10] = $1,500
0-100 Field to Win	[-500 * (0- 25) * $0.10] = $1,250
Profit/Loss for Permutation 3 = $6,250
Therefore the Worst Case Loss calculation would produce a margin requirement of $3,750.
But if Els withdraws due to injury before the start of the tournament when the Els to Win 0-100 contract is trading at, say, 15 then the Contract Rules dictate that he will be settled at 15. As, co-incidentally, this is the price at which the Els contract was sold, there will be no realised profit or loss, but the margin requirement will change. The permutations for calculating the new margin requirement now show the following:-
Permutation 1: Woods Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (100-35)*$0.10] =-$6,500
0-100 Field to Win	[-500 * (0- 25) * $0.10] = $1,250
Profit/Loss for Permutation 1 = -$5,250
Permutation 2: Field Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (0- 35) * $0.10] = $3,500
0-100 Field to Win	[-500 * (100- 25) * $0.10] = -$3,750
Profit/Loss for Permutation 2 = -$250
Permutation 3: Any Other Golfer Wins:
Contract	Positions
0-100 Woods to Win	[-1,000 * (0-35)*$0.10] = $6,500
0-100 Field to Win	[-500 * (0- 25) * $0.10] = $1,250
Profit/Loss for Permutation 3 = $7,750
In this case, the margin requirement rises to $5,250 (an extra $1,500) as the permutations no longer reflect the potential profit on the short Els position. In effect, the original assumption in the model, that only one golfer could settle at 0, has been broken by the Els withdrawal. Although intrade has the right to make an immediate margin call for this additional requirement if there were insufficient additional funds in the account. In practice there will be little time until the contract expires, so typically the exchange would wait until the event concludes. Were Woods to win the tournament, the portfolio loses $6,500 on the Woods 0-100 but gains $1,250 on the Field 0-100. In total, the portfolio loses $5,250. This is as predicted by the margin re-calculation but $1,500 more than originally forecasted. In such instances, the member would be called for the additional losses should there be insufficient in the account to meet those losses.

Example 12: S-T handicapped 0-100
Contract:	NCAA: Duke -20.5 v Michigan State
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10
Position:	Long 50 @ 33
Bid Risk =	50 * (0 - 33) * $0.10 = -$165
Ask Risk=	50 * (100 - 33) * $0.10 = $335
	Initial Margin Requirement is therefore $165
Scenario Result 1:	Duke 103 Michigan State 82
		Contract settles at 100
Scenario Result 2:	Duke 103 Michigan State 95
		Contract settles at 0
Scenario Result 3:	Duke 103 Michigan State 105
		Contract settles at 0

Example 13: Decreasing Margin Requirements on Trade Execution
Contract: Stanley Cup: NY Rangers v Chicago Blackhawks: NY Rangers to Win
Minimum Price:	0	Maximum Price:	100
Tick Size:	1	Tick Value:	$0.10
Position:	Long 20 @ 42
Orders:	Buy 15 @ 40
	Sell 10 @ 53
Bid Risk =	[20 * (0-42) * $0.10] + [15 * (0-40) * $0.10] = -$144
Ask Risk =	[20 * (100-42) * $0.10] + [-10 - (100-53) * $0.10] = $69
The above example with a margin requirement of $144 shows that the bid risk, which is responsible for the Worst Case Loss, does not take into account the potential profits on the sell order.
If the order to sell 10 @ 53 is filled, the margin calculation changes as follows:-
Bid Risk =	[20 * (0-42) * $0.10] + [15 * (0-40) * $0.10] = -$144
Ask Risk =	[20 * (100-42) * $0.10] + [-10 - (100-53) * $0.10] = $69
The above example with a margin requirement of $144 shows that the bid risk, which is responsible for the Worst Case Loss, does not take into account the potential profits on the sell order.
If the order to sell 10 @ 53 is filled, the margin calculation changes as follows:-
Bid Risk =	[10 * (0-42) * $0.10] + [15 * (0-40) * $0.10] = -$102
Ask Risk =	10 * (100-42) * $0.10 = $58
So, the execution of the order has reduced the margin requirement by $42, from $144 to $102. Mathematically, this is because the bid risk figure now includes profits from the 10 sold lots at 53, as it is now a position not an order. Note that there is also a realised profit of $11 (= 10 * (53-42) * $0.10) when the order is executed, as it partially closes out the position.