Futures Margin: Initial and Maintenance

Futures margin is the money you must deposit to open and hold a futures position. Unlike margin in a stock account, it is not a loan and you pay no interest on it. It is a good faith deposit, often called a performance bond, that covers potential losses so the clearing house can guarantee every contract. Because margin is a small fraction of a contract's value, futures are highly leveraged. Understanding how margin works, and how margin calls happen, is basic risk management. The general concept is in Margin.

The types of futures margin#

Exchanges and clearing houses set minimum margins, which brokers can raise. Margins change with market volatility; during turbulent periods, exchanges often increase them, sometimes sharply.

How margin and daily settlement interact#

Every day, positions are marked to market at the settlement price. Gains are added to your account and losses subtracted. If equity falls below the maintenance level, you receive a margin call and must bring the account back to the initial margin level. See Mark-to-Market.

Leverage implied by margin#

leverage = contract value / margin

With E-mini S&P 500 futures at 5,000 (contract value $250,000) and margin of about $12,500, leverage is about 20 to 1. A 5% fall in the index loses $12,500, the entire margin. See Leverage.

How exchanges set margin#

CME historically used a system called SPAN (Standard Portfolio Analysis of Risk), which estimates the worst likely one day loss across a range of price and volatility scenarios, and has been moving to a newer value at risk based framework, SPAN 2. Portfolios with offsetting positions, such as calendar spreads, receive lower margins because their risk is lower. See Futures Spreads Explained.

Day trading margins#

Many brokers allow much lower margins for positions opened and closed in the same session, for example $500 to $1,000 for an E-mini contract. This increases leverage enormously. A position that is not closed by the cut off time must meet full overnight margin, or the broker may liquidate it.

Margin calls and liquidation#

• Brokers may liquidate quickly, sometimes intraday, if equity falls too far, without waiting for you to add funds.
• Losses can exceed your deposit; you owe any negative balance.
• Margin can rise suddenly in volatile markets, triggering calls even without a price move against you.

Futures margin vs stock margin#

See Account Types and Margin Rules.

Managing margin risk#

1. Keep excess funds well above maintenance margin.
2. Size by risk, not by available margin.
3. Watch exchange margin changes, especially before major events.
4. Use stops, knowing they may slip in fast markets.
5. Avoid holding near limit during illiquid periods.

Frequently asked questions#

What is futures margin?#

A deposit required to open and hold a futures position, acting as a performance bond rather than a loan.

What happens if I get a margin call on futures?#

You must deposit funds to bring your account back to the initial margin level, or the broker can close your positions.

Why do exchanges raise margin requirements?#

To protect the clearing system when volatility rises, since larger price swings mean larger potential daily losses.

Next, compare futures with private contracts in Forwards vs Futures.