How to Calculate Daily Margins in Commodities for Gold

When trading gold futures, futures exchanges do not require investors to hold the entire value of the gold contract they are purchasing, but allow traders to buy with leverage, as long as they meet minimum equity requirements. The New York Mercantile Exchange (NYMEX), the US's premier metal trading exchange, requires $4,500 in account equity per contract. Once a contract is purchased, $3,333 in equity per contract is needed---this is referred to as margin maintenance. To calculate daily margin, you need to divide current account equity by the margin maintenance requirements for the current position size.

Things You'll Need

• Calculator

Instructions

1. Multiply desired position size by $4,500 to calculate initial equity needed to open position. Throughout this article we will use an example of a purchase of five gold futures contracts. Each contract is 100oz ,so each $1 move will lead to a $500 change in account equity. $4,500 x 5 = $22.500. This is the initial equity needed to open a five contract position.

2. Calculate daily price change in gold, by subtracting yesterday's price from today's. For example; today gold closed at $1,002, therefore $1,002 - $1,000 = $2.

3. Multiply the day's move by $500. 2 x 500 = $1,000.

4. Add the equity change to the start of day equity level. 1,000 + 22,500 = $23,500.

5. Divide current equity level by 3,333 times contract size. 23,500 / (3333 X 5) = 1.40. This is the daily margin number.

6. Multiply margin number by 100 to calculate margin percentage. 1.40 x 100 = 140. The margin percentage is 140%. This means that the current equity contains 140% of the margin maintenance required to hold the position.

References

• NYMEX