Margin
Margin Mechanics
Futures margin is a good-faith performance bond, not a loan. Initial margin is required to open a position; maintenance margin is the minimum equity level that must be maintained. Accounts are marked to market daily. If equity falls below maintenance, a margin call requires the customer to restore equity to the initial margin level, unless the firm’s policy states otherwise. Variation margin is the daily cash settlement among clearing members.
Exchanges set minimum margin levels; firms may require more. Margins differ by contract, volatility, hedge status, and spread treatment. Day-trading margins may be lower but are intraday only. A customer who fails to meet a call may have positions liquidated.
Traps
Do not call futures margin a down payment or interest-bearing loan. Do not assume a call restores equity only to maintenance; typically it restores to initial. Maintenance is lower than initial. Losses can exceed the margin deposit, creating a debit balance owed to the firm.
Worked Example
Initial margin is $5,000 and maintenance is $4,000. A $1,500 loss reduces equity to $3,500, below maintenance. The customer must deposit $1,500 to restore equity to $5,000, not $500 to reach maintenance. If the loss continues, further calls or liquidation follow.