Margin

In the last lesson you learned that you do not pay the full value of a futures contract. You keep a deposit called margin instead. This lesson explains the different kinds of margin and what happens when your account runs low.

Futures margin is not stock margin

If you have heard “margin” in the stock world, set that meaning aside. Stock margin is money you borrow to buy shares you then own. Futures margin is different:

It is not borrowed money. It is your own money, set aside.
It is not a down payment. You do not own anything.
It is a good-faith deposit that stays in your account to cover possible losses while your position is open.

Initial margin

Initial margin is the amount required to open a futures position. CME Clearing sets this amount for each contract. Your broker must collect at least that much and may ask for more.

Maintenance margin

Maintenance margin is the minimum your account must keep while the position stays open. It is lower than initial margin.

Think of it like a floor. As long as your account stays above the floor, nothing happens. If losses drag your account below the floor, the next section kicks in.

The margin call

If your account falls below maintenance margin, you may get a margin call. That is a demand to add money right away, enough to bring the account back up to the initial margin level, not just back to the floor.

If you cannot or do not add the money:

You may be able to shrink your position to fit the money you have left, or
Your broker may close your position for you automatically.

Being closed out by your broker is not a punishment. It is how the system protects the clearing house, and you, from losses growing beyond what is in the account.

A worked example

These numbers are made up for practice. They are not real margin levels for any contract.

Initial margin: $1,000. Maintenance margin: $800.
You deposit $1,000 and open one position.
The trade moves against you and your account drops to $750. That is below the $800 floor.
Margin call: you must add $250 to get back to the $1,000 initial level.

Day-trading margin

Brokers also set their own margin for positions that are opened and closed within the same trading session. CME explains that margin has a rate for normal trading hours and a higher rate if a trade is held overnight into the next trading day, and that each broker decides how much margin it offers its clients. This lower intraday amount is commonly called day-trading margin.

Two things to know:

It varies by broker. There is no single number. Read your broker’s margin page.
It does not shrink the risk. A lower day-trading margin lets you open a position with less money in the account. The contract still moves the same dollars per tick. Less margin means more leverage, not less risk.

Margin changes

Margin requirements are not fixed forever. When markets get more volatile, the clearing house can raise margin to cover the extra risk. When things calm down, it can lower it. Because the numbers change, this course does not print a current figure. For the latest exchange margin on ES, see CME’s margin page: https://www.cmegroup.com/markets/equities/sp/e-mini-sandp500.margins.html

You can lose more than your margin

Margin is the minimum to hold a position, not a limit on your loss. In a fast market, losses can exceed the money in your account. The CFTC warns that futures traders can be required to pay more than they first invested.

Key ideas

Futures margin is a good-faith deposit, not a loan and not a down payment.
Initial margin opens a position. Maintenance margin is the floor you must stay above.
Below maintenance, you may face a margin call to bring the account back to initial margin, or your position may be closed.
Day-trading margin is set by each broker. Lower margin means more leverage, not less risk.
Margin levels change. Always check CME and your broker for current numbers.