How Futures Margins Work
Futures margin is the amount of money that you must have on hand with your broker when you open a futures position. If you’re reading this article, you’ve probably read about or heard of day margins… But have you heard of initial or maintenance margin?
Let’s go over what margins really are and what you need to know.
Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may require additional funds for deposit depending on a few factors, including the volatility and liquidity of the contract.
Maintenance margin is the minimum amount that must be maintained per contract at any given time in your account. If your funds drop below this level, you may receive a margin call requiring you to add funds immediately to bring the account back up to the initial margin level. Failure to add funds in a timely manner will typically result in your position being liquidated by your broker.
Day Trading Margin
Day trading margin is the amount required by your broker to initiate a futures position with the intent to close that same position before the market close. The day trading margin is typically lower than the initial margin set by the exchange. If you intend to hold the position past the market close, you must have the full initial margin set by the exchange. Failure to offset your position or falling below the required day margin can result in your broker issuing you a margin call, or closing the position for you before the market close or upon the reopen if the position was held through the close. Most brokers including Ironbeam will require any customer using day trade margins to employ protective stop orders at all times during trading.
DISCLAIMER: There is a substantial risk of loss in trading commodity futures and options products. Losses in excess of your initial investment may occur. Past performance is not necessarily indicative of future results. Please contact your account representative with concerns or questions.
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