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

Haiwei Chen

Chinese Economy, 2018, vol. 51, issue 3, 241-262

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.

Date: 2018
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DOI: 10.1080/10971475.2017.1398586

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