Definition
Futures margin is the amount of money you need to open and maintain a futures position. It works like a good-faith deposit; not a full payment or a loan, but a form of collateral that helps ensure traders can cover their potential losses.
Understanding futures margin
When you trade futures, you’re not paying the full value of the contract up front. Instead, you post a fraction of that value, called margin, to enter the trade.
This margin acts as a risk buffer for both you and the exchange. It ensures that if the market moves against your position, there’s enough money in your account to cover the loss.
Both the buyer and the seller in a futures trade must post margin. It’s what keeps the system balanced and secure.
Margin example using Micro Crude Oil
Let’s say you want to trade Micro Crude Oil Futures (/MCL). Each /MCL contract represents 100 barrels of oil.
If crude oil is trading at $75 per barrel, the notional value of one /MCL contract is:
100 barrels × $75 = $7,500
The initial margin requirement for /MCL on MetroTrade is $290. That means:
- You control $7,500 worth of oil
- But you only need $290 to open the trade
- That’s just 3.9% of the full value
This gives you access to meaningful exposure with a small upfront commitment, which is exactly why margin and leverage are so powerful (and risky) for retail traders.
Initial margin
Initial margin is the amount of money you need in your account to open a new futures position.
This requirement is:
- Set and adjusted periodically by the exchange (like CME Group)
- Based on the volatility and value of the contract
- Sometimes raised by your broker for added protection
For /MCL, the initial margin might be around $290, but that number can change depending on market conditions.
Once you post this margin and enter the trade, your position becomes active and is monitored daily.
Maintenance margin
Maintenance margin is the minimum amount of equity you must keep in your account to keep your position open.
If the value of your trade drops and your account falls below this level, you’ll receive a margin call.
Example:
- Initial margin: $660
- Maintenance margin: $600
- If your account balance drops to $580, you’ll be required to:
- Add more funds
- Or close part/all of your position
Failing to meet the call could lead your broker to liquidate your trade, often at an inopportune time.
Why margin is required
Futures margin serves three main purposes:
- Risk control: Ensures traders can handle potential losses
- Market stability: Reduces sudden liquidation risk
- Leverage management: Keeps trades from becoming overextended
It’s a safety net for you, your broker, and the overall market.
Futures margin vs. stock margin
It’s easy to confuse futures margin with margin in stock trading, but they’re not the same.
- Stock margin is borrowed money.
- Futures margin is a deposit, not a loan.
|
Feature |
Stock Margin |
Futures Margin |
|
Purpose |
Borrow to buy shares |
Deposit to open/hold a position |
|
Ownership |
You own the stock |
You don’t own the asset |
|
Interest charged |
Yes |
No |
|
Regulated by |
Federal Reserve |
Exchanges and brokers |
|
Daily mark-to-market? |
No |
Yes |
When trading /MCL, your broker doesn’t lend you money. You’re simply posting collateral to control a $7,500 asset with $290 of margin.
Daily settlement and margin calls
Futures are marked to market at the end of each trading day. That means your account is updated daily based on the market value of your open position. Open futures positions are marked-to-market based on the settlement price of the contract, which the exchange publishes at the end of the trading day.
For example, if you are long MCL at a price of 75.00, and the market settles at 75.25, your account is marked-to-market and credited $25 (.01 = $1.00, so .25 x 100 barrels = $25).
If the market settles at 74.75, your account is debited $25.
If /MCL moves up and your trade is profitable, your account balance increases. If it drops and your trade is losing, your balance goes down.
If the losses cause your balance to fall below the maintenance margin, you’ll receive a margin call.
At that point, you must either deposit more funds or reduce your position size.
This is why many retail traders keep extra cash in their account to give themselves room during volatile sessions.
Notional value: your total exposure
Even though /MCL requires just a few hundred dollars to trade, you’re still exposed to the full value of the contract.
Notional value = contract size × price
In this case:
- 100 barrels × $75 = $7,500
That’s the actual amount you’re exposed to, even though you only put down $290. If oil moves $1 per barrel, your trade gains or loses $100 per contract.
That’s the leverage futures provide (and the risk that comes with it).
Can margin requirements change?
Yes, and they often do.
Exchanges and brokers adjust margin requirements based on:
- Volatility: More risk = higher margin
- Major news events
- Market crashes or shocks
- Liquidity conditions
For example, if oil prices spike or fall sharply, CME or your broker might raise the margin on /MCL. Staying aware of these changes helps prevent surprise margin calls.
Trading multiple futures contracts
If you trade more than one futures contract, your margin requirement scales with it.
Example:
- 1 /MCL contract = $290 margin
- 2 contracts = $580
- 4 contracts = $1,160
Your notional exposure also grows. If one /MCL contract controls $7,500, then four contracts give you $30,000 in exposure, with daily P&L swings to match.
Always size your trades with risk and margin in mind.
Key takeaway
Margin is what makes futures trading accessible, and what makes it risky.
- Initial margin is the capital you need to open a trade
- Maintenance margin is the minimum to keep it open
- Leverage allows you to control larger positions with smaller amounts of cash
- Margin calls can happen fast, especially in volatile markets
- Micro contracts like /MCL may make futures more manageable for smaller accounts
If you’re trading futures, margin isn’t just a number, it’s your safety buffer. Know it, manage it, and respect it.
You’ve now got a handle on margin and leverage. Next, we’ll cover what happens as a futures contract nears expiration, including how settlement works, when you need to act, and how to avoid getting caught in delivery deadlines.
Frequently Asked Questions
What is margin in futures trading?
Futures margin is a good-faith deposit that allows you to control a large position with a small amount of capital. It’s not a loan, instead it’s collateral to ensure both traders can cover potential losses.
What’s the difference between initial margin and maintenance margin?
Initial margin is the amount required to open a position. Maintenance margin is the minimum account balance you must maintain. If your equity drops below maintenance, you’ll get a margin call.
How does margin in futures differ from stock margin?
Stock margin involves borrowing money to buy shares and paying interest. Futures margin is a deposit—there’s no loan or interest, and positions are marked to market daily for real-time balance updates.
Can I lose more than my margin deposit when trading futures?
Yes. Because of leverage, losses can exceed your initial margin. If the market moves significantly against your position, you may be required to add funds or face liquidation.
Why do margin requirements change?
Exchanges and brokers adjust margin based on market volatility, major events, or sudden price swings. For example, if crude oil becomes highly volatile, margin for /CL or /MCL contracts may be raised.
What is notional value in futures trading?
Notional value is your total market exposure. It’s calculated as contract size × asset price. For example, 1 /MCL contract at $75 per barrel represents $7,500 in exposure, even if you only post $290 in margin.
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.