Trading term

What is Margin?

Margin is the deposit a trader must post to open a leveraged position — a fraction of the position's full value, held as collateral. It's what makes leverage possible: a small margin controls a large notional. Margin is not a down payment but a good-faith performance bond against potential losses.

When you trade futures or on margin, you don't pay the full value of the position — you post margin, a percentage of it, as security. 'Initial margin' is what's required to open the trade; 'maintenance margin' is the lower level your account must stay above to keep it open. The rest of the position's value is effectively financed, which is what creates leverage: a $10,000 position opened with $1,000 of margin is 10× leveraged. Margin is calculated by the exchange or broker based on the contract and its volatility.

The critical thing about margin is that it's a moving requirement, not a fixed cost. Your position is marked to market daily: gains are credited and losses debited from your margin. If losses erode your account below the maintenance margin, you get a margin call — a demand to deposit more cash or have the position closed out, often at the worst possible moment. This is why margin trading amplifies not just returns but the risk of being forced out: you can be right eventually but margined out before then.

Margin — the collateral behind leverage
A $50,000 futures positionfull value (leveraged)margin$4,000 initial margin — what you post to open$3,000 maintenance margin — fall below → margin callYou post ~8% of the position; the rest is leveraged. Daily losses erode the margin.

On a $50,000 position you post only ~$4,000 of initial margin. If losses erode your balance below the $3,000 maintenance level, you get a margin call. Margin is a performance bond, not a down payment.

For example

A futures contract worth $50,000 requires $4,000 initial margin and $3,000 maintenance margin. You post $4,000 to open it. If the position loses $1,200, your margin falls to $2,800 — below the $3,000 maintenance level — triggering a margin call to top back up or be closed out.

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Why it matters to you

Margin is the engine of leverage and the trigger of forced liquidations — understanding it is essential before trading futures or on borrowed money. Knowing the difference between initial and maintenance margin, and how daily losses erode it, is what keeps a trader from the nasty surprise of a margin call.

⚠ Margin can be called at the worst time

Traders treat the margin deposit as the cost of the trade and forget it's a living requirement. A losing streak or a sharp adverse move can push the account below maintenance margin, forcing a deposit or a liquidation — frequently near the bottom, locking in the loss. Using near-maximum margin leaves no buffer for normal volatility.

Frequently asked questions

What is margin in trading?

Margin is the deposit you post to open and hold a leveraged position — a fraction of the position's full value, held as collateral. It enables leverage: a small margin controls a large notional. It's a performance bond against losses, not a partial payment for the asset.

What's the difference between initial and maintenance margin?

Initial margin is what you must deposit to open a position; maintenance margin is the lower minimum your account must stay above to keep it open. If losses erode your balance below maintenance margin, you get a margin call to top up or be closed out.

What is a margin call?

A margin call is a broker's demand for more funds when your account falls below the maintenance margin, usually after losses. You must deposit cash or the broker closes your position — often at a bad price. It's the mechanism that forces leveraged traders out when losses mount.

How is margin different from a down payment?

A down payment is partial ownership of something you're buying; margin is collateral against potential losses on a leveraged position you don't own outright. Margin fluctuates daily with your gains and losses and can be called for more — a performance bond, not a purchase instalment.

Related terms

BackwardationBackwardation is when futures prices are lower for later delivery dates — the futures curve slopes downward. It often signals tight near-term supply or strong demand for immediate delivery. For futures holders it creates a positive 'roll yield,' as they sell pricier near-term contracts and buy cheaper later ones.BasisBasis is the difference between an asset's futures price and its current spot (cash) price. It reflects carrying costs, supply and demand, and time to expiry — and it converges to zero as the contract nears expiration, since a future about to settle must match the spot price. Traders watch basis to gauge conditions and to hedge.CFD (contract for difference)A CFD (contract for difference) is a derivative where you and a broker agree to exchange the difference in an asset's price between opening and closing the trade. You never own the underlying — you simply profit or lose on the price move, with leverage. CFDs cover stocks, indexes, commodities and crypto, and are popular outside the US, where they're banned.ContangoContango is when futures prices are higher for later delivery dates — the futures curve slopes upward. It usually reflects the costs of storing and financing an asset until delivery. Contango creates a 'roll cost' for anyone holding futures over time, as they repeatedly sell cheaper near-term contracts and buy pricier later ones.
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