The initial margin refers to the minimum amount required to open a futures position or an option on futures position. Your buying power must be higher than the initial margin before you can open the above-mentioned position.
When your account equity falls below the Margin Call margin, a margin call will be issued. In this case, you must make a deposit or close your positions as soon as possible to bring your account equity above the initial margin. Otherwise, we have the right to liquidate your positions without prior notice.
The maintenance margin refers to the minimum amount of equity that you must maintain in your account. Once your account equity falls below the maintenance margin, we have the right to liquidate your positions based on the market conditions without prior notice.
Learn more details about margin requirements.
Equity-style options support physical delivery, and close-to-expiry options are options that expire within 5 trading days.
At expiry, your position may undergo the following changes:
1) If you are long a call option, then after you exercise the option, you will open a long position in the underlying futures contract, and you will see the floating profit or loss on that position in your account.
2) If you are long a put option, then after you exercise the option, you will open a short position in the underlying futures contract, and you will see the floating profit or loss on that position in your account.
3) If you are short a call option, then after the option is assigned, you will open a short position in the underlying futures contract, and you will see the floating profit or loss on that position in your account.
4) If you are short a put option, then after the option is assigned, you will open a long position in the underlying futures contract, and you will see the floating profit or loss on that position in your account.
Since your options may exercise or be assigned at expiry, Futu will begin to calculate the margin requirements that you must meet to exercise your option, which is in the money or nearly in the money, from a random time prior to market close on the expiration day. If you don't have enough funds to exercise your option, your account will be in "Margin Call" status. In this case, you can close your option position, or you can get enough funds by closing your other positions or making a deposit in your account.
Once your account is in "Margin Call" status, Futu reserves the right to take relevant actions, which include but are not limited to 1) liquidating your option position, and 2) exercising the option and closing the resulting futures position.
Say you have cash of $100 and hold no position except for an equity-style option on futures contract EUU 230303 1.0525C. The price of the underlying futures contract on the expiration day is $1.0711; the floating profit or loss (or P/L) in your account is $0; the margin requirement is $0. Here is a summary:
● Position: 1 Long EUU 230303 1.0525C
● Cash: $100
● Floating P&L: $0
● ELV: Cash + Floating P&L = $100 + $0 = $100
● Margin: $0
By exercising the option at expiry, you close your option position, and at the same time open a futures position by buying a futures contract 6E2303 at the exercise price of $1.0525. So your account details are as follows:
● Position: 1 Long 6E2303
● Cash: $100, unchanged
● Floating P&L: (current price of underlying futures - exercise price) * contract size * position quantity = ($1.0711 - $1.0525) * 125,000 * 1 = $2,325
● ELV: Cash + Floating P&L = $100 + $2,325 = $2,425
● Margin: The Margin Call margin requirement is changed from $0 for one option on futures contract to $2,600.24 for one futures contract.
Since your account ELV is less than the Magin Call margin requirement, you don't have enough funds to exercise the option.
Therefore, you need to cover the difference between your account equity and the Margin Call margin requirement, which is $2,600.24 - $2,425 = $175.24.
The Company would have offset arrangements (“Offset Arrangements”) whereby funds are transferred between client’s accounts which effectively set-off the debit balance of a client’s trade ledger account under futures account against the credit balance of the client’s other trade ledger under futures accounts or other accounts.
When a client’s trade ledger account under futures account has a margin shortfall or when a client wants to open new positions without adequate margin deposits, while the client’s other trade ledger account under futures accounts or other accounts have excess cash balance. Under this circumstance, it is agreed that, without prior notice to the client, the Company is authorized to:
1) engage in the Offset Arrangement without obtaining the client’s consent before each fund transfer;
2) sell the collaterals held in the client’s other trade ledger account under futures accounts or other accounts and used the sale proceeds to fund a shortfall in the client’s trade ledger account under futures account;
3) effect the transfer of the excess funds in the client’s other trade ledger account under futures accounts or other accounts to the client’s trade ledger account under futures account to cover the margin shortfall with necessary buffer (if any).
When entering into Offset Arrangement such that funds have been transferred to cover margin shortfalls in lieu of forced liquidation, the client is acknowledged that he/she may not have the opportunity to decide whether to maintain open positions subject to market risk or to stop continuing losses by liquidating them. In addition, the client may bear additional charges (if any) due to the Offset Arrangement.