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How to Manage Capital to Avoid Risk of Forced Liquidation?
2010-11-24

 

As stock index futures trading is based on margins, a slight price fluctuation will cause changes in investors’ margin balance. Investors’ open interest may be imposed with forced liquidation if the capital in their accounts can not meet the requirements for additional margins due to poor capital management. Besides, investors may still suffer great losses from forced liquidation before making profits due to poor capital management despite their correct prediction on price trends.

 

Mature market experience tells us that it is unwise to take full position in stock index futures trading, and the invested capital usually can’t exceed a half and had better be within a third of the total investment so as to leave room for the possible required additional margins in case of market fluctuation.