Futures Margin Explainer
Futures margin is a performance bond that supports a trader’s ability to meet contract obligations. Because the position controls a much larger notional amount, margin is not the same as paying part of an asset’s purchase price in a stock margin account.
Initial margin is required to open the position. Maintenance margin is the lower threshold that must remain afterward. Daily mark-to-market losses reduce account equity, and falling below the requirement can trigger a demand for variation funds to restore the balance.
Exchanges and clearinghouses set baseline requirements, while brokers may impose higher house margins. Requirements can rise during volatility, sometimes when positions are already losing. Acceptable collateral, haircuts, interest treatment, and intraday calls vary by firm and product.
Failure to meet a call can lead to forced liquidation without the trader’s preferred timing. Sound planning therefore compares potential daily and gap losses with liquid cash, not merely the opening margin. Hedgers also need working capital even when the commercial exposure offsets losses economically.
Margin supports the obligation on a large notional contract.
It does not cap the trader’s loss.
Mark-to-market can push the account below maintenance.
Variation funds may be required quickly.
Clearing and broker margins often increase during stress.
Liquidity planning must include more than the initial amount.
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