Margin Considerations for Intramarket Futures Spreads

Background

Clients who simultaneously hold both long and short positions of a given futures contract having different delivery months are often provided a spread margin rate that is less than the margin requirement for each position if considered separately. However, as the settlement prices of each contract may deviate significantly as the front month contract approaches its close out date, IBKR will reduce the benefit of the spread margin rate to reflect the risk of this price deviation.

This reduction is accomplished by effectively decoupling or breaking the spread in phases on each of the 3 business days preceding the close out date of the front contract month, as follows:

• On the 3rd business day prior to close out, the initial and maintenance margin requirements will be equal to 10% of their respective requirements on each contract month as if there was no spread, plus 90% of the spread requirement;
• On the 2nd business day prior to close out, the initial and maintenance margin requirements will be equal to 20% of their respective requirements on each contract month as if there was no spread, plus 80% of the spread requirement;
• On the business day prior to close out, the initial and maintenance margin requirements will be equal to 30% of their respective requirements on each contract month as if there was no spread, plus 70% of the spread requirement.

Working Example

Assume a hypothetical futures contract XYZ with the margin requirements as outlined in the table below:

 XYZ Front Month - 1 Short Contract (Uncovered) Back Month - 1 Long Contract (Uncovered) Spread - 1 Short Front Month vs. 1 Long Back Month Initial Margin \$1,250 \$1,500 \$500 Maintenance Margin \$1,000 \$1,200 \$400

Further assume a position consisting of 1 short front month contract and 1 long back month contract with the front month contract close out date = T.  using this hypothetical example, the initial margin requirement over the 3 business day period preceding close out date is outlined in the table below:

 Day Initial Margin Requirement Calculation Details T-4 \$500 Unadjusted T-3 \$725 .1(\$1,250 + \$1,500) + .9(\$500) T-2 \$950 .2(\$1,250 + \$1,500) + .8(\$500) T-1 \$1,175 .3(\$1,250 + \$1,500) + .7(\$500) T \$1,175 Positions not in compliance with close out requirements are subject to liquidation.