In the world of futures trading, the term margin refers to a deposit of good faith that can be used by your brokerage firm to cover any day-to-day losses that may occur. The 2 main terms that clients need to be familiar with are initial margin and maintenance margin. The exchange sets both of these figures and they can fluctuate according to market conditions. For example, an increase in market volatility and the range of daily price movements is frequently a reason for raising margins.

Initial margin is the amount of money that you must have in your account for each futures contract to be bought or sold and held overnight. The S&P500 e-mini contract currently has a margin requirement of $3500, which means you would need to have this amount in your account to hold this position overnight. Overnight, in this case, is meant to be the close of the market (3:15pm Central Time for the S&P500 e-mini).

Once you have held the position for 1 day, the exchange lowers the requirement of margin to allow for market fluctuations. This new margin level is called maintenance margin. If your account goes below the margin requirement, you will be required to deposit additional funds to bring the balance above this amount. The brokerage firm can protect itself by liquidating your open position at the available market price, so make sure you understand these concepts before trading.

For a free educational manual, “CME E-mini Stock Index Futures and Options on Futures”, provided by the Chicago Mercantile Exchange (CME), please click here.