What is margin?
When trading Futures contracts, you must have a certain level of funds in your account in order for your position to remain open, known as margin.
With margin, the possibility of trading instruments of greater value is open to the trader. The level of margin needed to open a position is lower than the instrument’s actual value, so the trader uses what is known as leverage to trade.
Margin is what enables Futures traders to trade instruments whose value is greater than the amount needed to open a position. This mechanism is called leverage. Leverage increases potential profits, but potential losses grow as well.
There are two important forms of margin used in Futures trading: the intraday rate and the full-day rate. The intraday rate is the level of funds needed to first open a position, and is generally considered low-cost. Conversely, the full-day margin is that which exchanges require following the closing bell of the trading day to keep the position open. Understanding the difference between these two is exceedingly important for Futures traders.
While margin rates encompass a wide range, intraday margin generally begins from $30 for micro e-mini Futures contracts and extends to $2000 for standard Futures. This variance includes a large degree of variation depending on the underlying asset, time, and type of Futures contract.
Margin alerts are issued when a trader has a losing position open on a Futures contract. The margin alert functions to warn the trader that they must deposit more money into their account to cover the gap between the account’s current level of funds and the contract’s margin requirement in order to avoid auto liquidation.