Margin Requirements

Current margin requirements

What you should know about margin and how it works.

An understanding of margins, and of the several different kinds of margin, is essential to an understanding of futures trading.

Rather than providing a down payment, or being a cost, the margin required to buy or sell a futures contract is solely a deposit of good faith money. Minimum margin requirements, which are typically about 5% of the value of the futures contract, are set by the exchanges. Exchanges continuously monitor market conditions and risks and, as necessary, raise or reduce their margin requirements.

There are two margin-related terms you should know: initial margin and maintenance margin:

• Initial margin: The deposit required to initiate either a short or long futures position.
  
  
• Maintenance margin: If and when the funds remaining available in your margin account are reduced by losses to below a certain level, known as the maintenance margin requirement, you will be required to deposit additional funds to bring the account back to the level of the initial margin. Or, you may also be asked for additional margin if the exchange raises its margin requirements.
  

For example, if the initial margin for gold is $2,000 and the maintenance margin is $1,500, you would need to have $2,000 allocated from your account as initial margin to trade the gold contract. Should losses on your position amount to, say, $600, the value of your initial margin would be reduced to $1,400, which is below the $1,500 maintenance margin requirement. Therefore, excess funds in the amount of $600 from your account would be automatically allocated towards bringing the initial margin figure back to $2,000. If there were not excess funds in the account to bring the initial amount back up to $2,000, the trader would have to meet the margin call immediately or else the position would be liquidated.

Note: Maintenance margin is usually approximately 75% of initial margin.

Mini-Contracts range from 1/2 to 1/5th of the full-sized contracts. Margin rates are approximately proportionate to their size.

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