What this unit covers
Understand why margin and liquidity matter more in derivatives than in plain investing, and what happens when either moves against you.
By the end you will be able to
- Explain why margin acts as a survival buffer, not extra buying power.
- Describe why liquidity can disappear when you most need to exit.
- Distinguish between affording to enter a position and affording to stay in it.
How it starts: Right on Direction, Still Forced Out
- You open a futures position, sure the price will rise this week.
- An overnight dip eats your margin, and the broker wants more money by evening.
- Two days later the price rises as expected, but are you still in it?
Words you will meet
- Margin
- The money set aside as a buffer to hold a borrowed position, not extra spending power.
- Margin call
- A broker's demand for more money when losses eat into your margin, usually within hours.
- Liquidity
- The ability to find a buyer or seller to exit a position at a fair price.
- Futures
- A contract to buy or sell an asset at a set price on a future date, marked to market daily.
In this module: Risk Management in Derivatives
- Margin and Liquidity (this unit)
- Position Sizing and Portfolio Heat
- Gap and Tail Risk
- Pre-Trade Plan, Stress Test & Review
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