Performance bonds – deposits required to ensure that a clearing member can cover potential losses with his or her trading positions – help to ensure that clearing members can meet their obligations to their customers and to CME Clearing.
You can view a full listing of Performance Bond/Margin Requirements here.
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As prices change throughout the life of a futures contract, the trading accounts where performance bonds are held are debited and credited accordingly - guaranteeing price performance and eliminating the risk of default on either side of the trade. Financial safeguards provided by CME Clearing protect the financial interests of both parties in a trade, leading to sound markets and deeper liquidity - around the clock - everywhere in the world.
Suppose a trader established a position to buy (go long) a September E-mini S&P 500 futures contract on June 13, when the contract was trading at 1050.00 points [This number is for demonstration purposes only – it is not meant to reflect the current value of the S&P 500]. Suppose also that CME at the time required an initial performance bond of $4,000 to trade that contract, with a maintenance bond of $3200.
If the price variations of the contract bring the account balance under $3200, the trader will have to deposit additional funds to bring the account back up to $4,000. The trader’s potential gains and losses change each time the settlement price of the contract changes, with the final gain or loss determined when the trader either offsets the contract by selling it, or when the contract expires.
The total notional – cash – value of the contract is determined by multiplying $50 times the S&P 500 Stock Index futures index. On June 13, therefore, the contract was valued at $52,500. The account balance will vary at the end of each day based on the closing value of the index multiplied by $50. For example, if the index goes down by 10 points the next day, the account goes down by 10 x $50 or $500. If it goes up by six points, the account goes up in value by 6 x $50 or $300. The diagram below demonstrates how this works.
Note: The gain does not include brokerage and other fees.