How Limit Orders Affect Margin in Futures Trading?

At Optimus Futures, we’ve noticed that some of our traders experience order rejections when placing trades. To help our traders navigate this issue, we want to shed light on how open orders, whether limit or stop orders, can impact margin requirements and potentially lead to rejections

In this article, we’ll use the Micro E-mini S&P 500 futures contract (MES) as an example to explore the mechanics of margin calculations, discuss how different types of open orders affect available margin, and provide practical tips for managing your positions to minimize the risk of rejection.

Let’s consider a scenario with the MES, a day trading margin of $50, and a deposit of $1,000. Suppose a trader has an open position of four MES contracts, which requires a margin of $200 (4 x $50). The account balance is $1,000, and the available margin is $800 ($1,000 - $200).

Now, the trader decides to place a limit order to buy six more MES contracts at a price not yet reached by the market. The margin impact of this limit order would be $300 (6 x $50). The total margin requirement for the account would be $500 ($200 for the open position + $300 for the limit order).

Even though the limit order hasn’t been filled, the available margin is reduced to $500 ($1,000 - $200 - $300) to account for the potential margin requirement if the order gets filled.

If the market moves against the trader’s open position and the account balance drops to $700 (a loss of $300, for example), the trader may wish to liquidate their position. However, because the available margin is reduced due to the existing open orders (both limit and stop orders), the total margin requirement for these open orders may exceed the available margin.

In this case, when the trader attempts to use the “Flatten Button” to quickly liquidate their open position, the order may be rejected. This is because the “Flatten Button” typically only closes the current open positions and does not cancel the pending orders (limit and stop orders) that are still “occupying” the margin.

As a result, even after the open position is closed, the remaining margin may not be sufficient to cover the margin requirements for the pending orders. This can lead to the rejection of the “Flatten Button” order, as the system recognizes that the account does not have enough available margin to support the remaining open orders.

To avoid this situation, traders should be proactive in managing their open orders and margin requirements. This may involve manually canceling pending orders to free up margin before attempting to liquidate open positions, especially in rapidly moving markets where margin requirements can change quickly.

Please let us know if you have any question.

Matt Z
Optimus Futures