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Month: May 2022
FTX Proposes Direct Clearing for Futures Trading
FTX brought brought and debated a disruptive approach of the Clearinghouse model in front of the U.S. Congress today by proposing two new, key features: direct clearing access sidestepping autocratic control of futures trading, and automated liquidations of margin positions.
Whether FTX’s proposal succeeds is almost irrelevant.
FTX Founder Sam Bankman-Fried opened a pandora’s box of democratic, automated futures trading. Congresspersons and investors alike shall discuss this in the months ahead.
It’s essential to review the mechanics of margin trading quickly. An initial margin, often 50%, represents the proportion of the futures order value required to open a position in the form of securities in safekeeping. If the price of the underlying security drops, so does the value of the initial margin, possibly prompting a margin call.
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Disclaimer: The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech, and entertainment. Mr. Chalopin is Chairman of Deltec International Group, www.deltecbank.com.
The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.