A Performance Bond, Not a Loan
Stock margin is borrowed money: you pay interest and the broker holds your shares as collateral. Futures margin is different. Nobody lends you anything. You post a deposit — typically a small percentage of the contract's notional value — that stands behind your obligation to honor daily losses. Both buyer and seller post it, because either side can lose.
Because the deposit is small relative to contract value, leverage is built into every futures position whether you want it or not. The only way to de-leverage is to hold more cash than required.
Initial, Maintenance, and the Margin Call
- Initial margin — required in the account before you open the trade.
- Maintenance margin — usually 70 to 90 percent of initial; the floor your equity must hold.
- Margin call — if equity drops below maintenance, you must restore it to the initial level, promptly, or the broker will close positions for you.
Every trading day the clearinghouse marks all positions to the settlement price. Gains land in your account as cash; losses leave as cash. There is no waiting until you close the trade — futures settle daily, which is exactly why margin calls can arrive fast in a volatile market.
Picture a $10,000 account holding one contract with $4,000 initial margin and $3,500 maintenance. Two bad settlement days that cost $1,700 combined drop equity to $8,300 — still fine. A third bad day at $900 more puts you at $7,400, below the maintenance line for two contracts' worth of exposure math, and the call arrives. The loss did not wipe you out; the margin mechanics simply forced a decision you would rather have made on your own schedule.
Managing Margin Like a Professional
Keep a generous cushion above initial margin so ordinary swings never put you on call. Watch for exchange margin increases, which often arrive during the volatile stretches when positions are already under stress. And remember that spread positions usually carry reduced margins because their risk is genuinely lower.
Futures trading involves substantial risk of loss and is not suitable for all investors. If forced liquidation and margin calls are unacceptable to you, ask about alternatives such as options on futures, where the premium paid is the maximum risk on a long option.