Derivatives · Intermediate · 4 min

Margin and daily mark-to-market

You can explain initial and maintenance margin, follow a futures account through daily settlement, and say when a margin call happens.

Settled every day

With a share, a loss stays on paper until you sell. With a future, there is no waiting. Every evening, the day's gain or loss is added to or taken from your account in real money.

That daily settlement is what keeps futures markets safe for the system as a whole. For the individual trader, it means the account can need fresh money at the worst possible moment. This lesson walks through the mechanics.

Initial, maintenance, call

The CFTC describes futures margin as a performance bond, not a down payment: money that ensures each side can meet its obligations.

Initial margin is the amount you must post to open a position. Exchanges set minimums, and brokers may require more.
Maintenance margin is the lower level the account must stay above while the position is open.

Every day, the position is revalued at the settlement price. This mark-to-market credits gains to your margin account and debits losses. The clearing house collects from the losing side and pays the winning side, every day.

If losses push the account to or below the maintenance level, the broker issues a margin call. The CFTC glossary explains that the customer must then restore the account to the initial margin level. If the money does not arrive in time, the broker can close the position, at whatever price the market offers.

Because initial margin is only a small part of the contract's value and maintenance margin lower still, a normal move against the position can trigger a call within days. Losses can also exceed the margin posted: the trader then owes the difference.

Below 9,000 → top up

A fictional trader buys one futures contract worth 50 dollars per point. Initial margin is 10,000, maintenance margin 9,000.

Day 1: the price falls 10 points. Loss: 500. Account: 9,500, still above 9,000.
Day 2: the price falls another 30 points. Loss: 1,500. Account: 8,000, below 9,000.
Margin call: the trader must add 2,000 to bring the account back to 10,000, or the position is closed.

Over two days, the price fell 40 points. The loss of 2,000 has already been paid, even though the position is still open.

Common mistakes

Using all available cash as margin. Leave room for margin calls.
Thinking losses only count at the end. They are settled every day.
Ignoring broker margins. They can be higher than exchange minimums and can rise in volatile markets.
Hoping for a reversal after a margin call. The broker may close the position first.

The takeaway

Futures margin is a performance bond. Every day, gains and losses are settled. Fall below maintenance margin, and you must top up to the initial level.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the day on which the account falls below the maintenance margin.

Tap the chart.

At 8,000, the account is below the 9,000 maintenance level, so the broker issues a margin call.
2How does the CFTC describe futures margin?

Margin ensures traders can meet their obligations. It is not part of a purchase price.
3After a margin call, to what level must the account usually be restored?

The CFTC glossary: a margin call requires restoring equity to the initial margin level.
4Can a broker demand more than the exchange's minimum margin?

The CFTC notes that futures commission merchants may require more than the exchange minimum.

of 4 correct.