Understanding Margin in Futures Trading

Margin is a fundamental concept for new futures traders to understand. When trading futures contracts, margin is essentially a bona fide deposit required to control a futures contract.

Forward margin is the amount of money you need to have in your brokerage account to protect both the trader and the broker from potential losses on an open trade. It is usually a much smaller percentage of the contract, usually 3-12% of the theoretical value of the futures contract.

With this deposit, futures traders can trade instruments worth well above the margin price. This is known as leverage .

Check out a quick start guide to managing futures margin:

Margin Types

Futures trading margins fall into 2 main categories:

  1. The intraday margin is the minimum account balance required by your broker to hold a position of a contract (long or short) during trading hours. This is also sometimes called intraday trading margin .
  2. The initial margin this is the minimum amount per contract required by the exchange that must be held in your account to hold a position overnight. This is sometimes called one day margin . *

*Please Note: It is important to remember that the margin rates shown are the MINIMUM required to hold a position and are not considered the minimum to open a position. Although position management is the responsibility of each trader, it is recommended that you give a trade enough room to breathe and avoid margin violations. Leverage can lead to losses in excess of initial margin and traders should be aware of the risks associated with futures trading.

Occupy a position overnight

An overnight position is a position, long or short, that is not closed before the end of the trading day. It is important to understand the risk associated with holding a position overnight, such as exposure to possible adverse price movements that occur outside of normal trading hours.

Maintain adequate excess margin

Excess margin can be defined as the amount of equity in a brokerage account above minimum margin requirements. Excess margin management is an important concept in futures trading, as failure to maintain sufficient margin levels can lead to possible liquidation and/or fines by the broker.

  • Rules it simply means closing a long or short futures position and can also be called netting. The liquidation is the result of insufficient intraday margin.
  • Nail margin call this is a request from your broker to bring margin deposits to the levels required to avoid full or partial liquidation. A margin call results from insufficient initial margin.

Trading with “full leverage” means leaving no excess margin and therefore no room for error. When trading with full leverage, if a trade moves one tick against you, your position is subject to the risk of forced liquidation by the dealing desk. Any debit account is deemed to be in violation of margin requirements and is subject to liquidation.

In general, the easiest way to manage excess margin is to trade contract sizes appropriate to your pre-determined risk levels and account size.

  • Advice: Use NinjaTrader’s Excess Margin Account screen to monitor available margin directly through the platform!

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