Using Margin

Margins may be required when entering into an option trade. Margins are usually required when the trade is entered into as a credit (receiving funds at the open of the trade), although there are instances when a debit strategy may also require a margin when there is the possibility for unlimited loss.

A margin is collateral lodged with the options clearing house in order to mitigate the risk of a credit default by the party involved in the options trade.

Margin may be covered by either lodging the specific stock that the option is derived from, lodging eligible collateral or with cash. If a position moves against an option trader in a position with margin required, then a margin call may be made whereby the trader is required to lodge extra margin. A margin call should be avoided at all costs.

This module also reviews market indices and exchange traded funds (ETF's), and the possibility of trading the market as a whole. Market indices track a certain sector of the market, the most common being the ASX200.

ETF's are constructed in such a way that they mirror the movements of these indices and as the name indicates they are traded on the exchange, thereby meaning that a trader can effectively invest in that particular index.

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