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So I know what was happening at the end of Trading Places (promising to sell OJ at 142 and then buying at 29 when the price drops)

However, if you can just buy stuff, or make promises to buy, without having the cash to hand, why was it important they get the cash from the others before they start trading?

  • I presume they need it to put up some sort of proof that they have money to operate on the stock market. – BCdotWEB Mar 30 at 7:50
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The clearinghouse requires that all traders post margin. Otherwise, everybody would be able to trade in infinite size and the losers would not be able to make good on their bets.

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  • But they only had about 40k from the woman and an unspecified amount from the butler. This website worked it out that they traded about 250m. Also the brothers lost almost 400m and said they didn't have the money to cover it dangerouslogic.com/trading_places.html – cantsay Mar 30 at 13:19
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    Margin isn’t 1:1; you get a lot of leverage when trading futures and options. And it certainly doesn’t prevent the trader from losing money; it’s designed to protect the clearing house. – Michael Stern Mar 30 at 13:23
  • So it's basically saying "look, here's $100k. we're not here just to joke around"? – cantsay Mar 30 at 21:02
  • @cantsay the cash is on deposit with the clearing firm (for traders) or clearing house (for members). If your investments go the wrong way, you have to replenish the margin. And if you can’t, they liquidate your account and keep as much of the margin as they need to make themselves whole. The amount of margin needed for different kinds of investments is set by law, regulation, and/or clearinghouse policy and generally, the riskier the investment, the higher the margin requirement. – Michael Stern Mar 30 at 21:28

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