Definition
A futures margin call happens when the value of your trading account falls below the required margin to keep an open position. In response, your broker will notify you to deposit additional funds, reduce your position size, or risk having part (or all) of your trade liquidated.
This mechanism is an important part of risk control in futures markets. It helps protect both the trader and the brokerage from excessive losses by enforcing capital requirements in real time.
Understanding Futures Margin Calls
When you open a futures trade, you’re required to deposit an upfront amount of money called initial margin. This acts as collateral to cover potential losses. As the market moves, your profit or loss is calculated daily using a process called mark to market.
If the market moves against your position and your account value drops below a second threshold—called the maintenance margin—your broker will issue a margin call. This is essentially a warning that your collateral is no longer sufficient to support the open trade.
While the initial margin gets you into a trade, the maintenance margin keeps you in it. And if your balance falls below that level, action is required.
Why Do Margin Calls Happen?
Futures contracts are highly leveraged. This means even small changes in the underlying asset’s price can result in large gains or losses. If the market moves significantly against you, your account may not have enough equity to cover potential losses, triggering a margin call.
For example, suppose you’re trading 1 Micro E-mini S&P 500 futures contract, which has an initial margin requirement of $1,500. If the trade moves against you and your account balance drops to $1,400, you’ve breached the maintenance threshold. Your broker will issue a margin call requiring you to bring the balance back up to $1,500 either by adding funds or closing part of your position.
What is the Initial Margin Requirement?
The initial margin is the minimum amount required to open a position. It’s a good-faith deposit that both buyers and sellers must provide to begin trading a futures contract. This isn’t a down payment; it’s collateral to ensure both parties can cover potential losses.
The amount is set by the exchange and can vary by product, market volatility, and broker policies. Once you enter the trade, that initial margin stays locked up until the position is closed, at which point gains or losses are realized and the margin is released.
What is the Maintenance Margin Requirement?
The maintenance margin is the minimum balance you must maintain to keep the position open. It’s usually set slightly lower than the initial margin, though some brokers use the same value for both.
If your account balance falls below this level due to mark-to-market losses, your broker will issue a margin call. This call requires you to bring the account back up to the initial margin level, not just the maintenance threshold. The goal is to restore the financial cushion needed to support further market movement.
What Happens During a Margin Call?
When a margin call is issued, you typically have three options:
- Deposit more funds to bring your account back up to the required level.
- Reduce or close your position to lower your exposure.
Let’s say you’re trading a crude oil futures contract and the margin requirement is $2,000. If the market drops and your account falls to $1,700, you must either deposit $300 to restore your margin or close part of your position. If you do nothing, your broker may step in and liquidate contracts on your behalf.
What is a Past-Due Margin Call?
If you don’t act on a margin call within a set period (usually one trading day), it becomes past due. Brokers may give a short grace period, but if the call remains unmet, they’ll likely start liquidating positions to protect themselves and ensure the account doesn’t slip further into deficit territory.
During this time, your account may be set to “position closing only” status. This means you’re restricted from opening new trades until the call is satisfied.
How Do You Satisfy a Futures Margin Call?
You can meet a margin call in a few different ways:
- Deposit funds: The fastest and most direct solution.
- Close part or all of your position: This reduces your margin requirement and risk.
The call is typically satisfied once your account reflects the required funds or your reduced exposure.
What is “Position Closing Only”?
This status is a risk-control measure used by brokers when your account is not in good standing, such as when a margin call goes unmet. You won’t be allowed to enter any new trades—only close existing ones. This restriction stays in place until the margin issue is resolved.
How Can You Avoid a Futures Margin Call?
While it’s impossible to eliminate risk entirely, you can reduce the chance of a margin call through proper risk management:
- Maintain a cash cushion: Many traders keep 2 to 5 times the required margin in their account. This buffer helps absorb volatility.
- Use stop-loss orders: These can help limit downside risk. Just note that in fast-moving markets, stop orders may experience slippage or fail to fill at all.
- Monitor positions closely: Pay attention to your margin levels, especially in volatile markets or near contract expiration.
- Avoid over-leveraging: Only risk what you can afford to lose. Trading with the minimum margin puts you on thin ice.
Example: A Realistic Scenario
Imagine Spencer opens a position in 1 Micro Crude Oil futures (/MCL) contract with an initial margin of $1,000. He deposits $1,100 into his account, giving himself a small cushion.
After several trading days, oil prices fall sharply, and Spencer’s position is marked to market with a $200 loss. His balance drops to $900, below the required margin. Spencer receives a margin call to bring his account back to at least $1,000.
To resolve the situation, he deposits $200 more. This restores his balance to $1,100 and keeps his position open. The market later rebounds, and Spencer exits with a gain. But more importantly, he now understands how close he came to forced liquidation.
Takeaway
A futures margin call is a key safeguard in leveraged trading. It’s triggered when your account falls below the minimum required margin due to adverse price movements. You’ll need to either deposit funds, reduce your position, or face liquidation.
Proper risk management, including maintaining a margin buffer, monitoring positions, and using stop-loss orders, can help prevent margin calls and protect your trading capital.
Understanding how margin works is just one part of the risk management puzzle. In the next article, we’ll break down how to manage risk in futures trading with practical strategies every trader should know.
Frequently Asked Questions
What is a futures margin call?
A futures margin call happens when your account balance falls below the maintenance margin required to keep an open position. Your broker will ask you to deposit funds or reduce your position to restore the required margin level.
What causes a margin call in futures trading?
Margin calls are triggered when the market moves against your open position and your losses reduce your account equity below the maintenance margin. This is typically calculated daily using the mark-to-market process.
How do I satisfy a margin call?
You can meet a margin call by depositing additional funds, or reducing or closing your position.
What happens if I ignore a margin call?
If a margin call goes unmet, your broker may liquidate part or all of your position to bring your account back into compliance. Your account may also be placed on “position closing only” status, blocking new trades until resolved.
What’s the difference between initial margin and maintenance margin?
Initial margin is the amount needed to open a trade. Maintenance margin is the minimum balance required to keep that trade open. If your equity drops below the maintenance margin, a margin call is triggered to restore the full initial margin.
How can I avoid a margin call?
Maintain a cash buffer above the required margin, use stop-loss orders, monitor your positions closely, and avoid over-leveraging. Many traders keep 2–5× the required margin to help absorb market volatility.
Disclaimer: Margins may vary from the published rates. This content is intended for informational purposes only, and does not constitute a comprehensive overview of all products or margin requirements available on the exchange, and is subject to change at any time. Click here to access the complete list. Additionally, all margins are subject to change without notice due to factors such as events, market volatility, or increased risk. MetroTrade is not responsible for any errors or omissions.