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Margin Policy in Futures Trading: The American System vs. the Chinese System

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  • Haiwei Chen

Abstract

A model shows that the price-dependent Chinese margin system differs from the fixed-amount American margin system by altering the risk of underlying positions, resulting in a more elastic demand by long-term buyers but a more inelastic demand by long-term sellers, whereas demand by day traders is not affected. The simulation results show a reduction in price volatility when trading is switched to the Chinese floating system. Empirical evidence shows that futures price volatility in China is lower in general and on market-down days than that in the United States, both of which are consistent with the predictions of the model.

Suggested Citation

  • Haiwei Chen, 2018. "Margin Policy in Futures Trading: The American System vs. the Chinese System," Chinese Economy, Taylor & Francis Journals, vol. 51(3), pages 241-262, May.
    • Handle: RePEc:mes:chinec:v:51:y:2018:i:3:p:241-262
    DOI: 10.1080/10971475.2017.1398586
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