Futures Margins: What, Why, And How by Roger Barone
Most traders are familiar with how margins on equities work, but what about margins on futures? Here, we look at the unique characteristics of futures margins to understand their nuances.
Margin, when trading futures, is a little different than for other securities. Think of it as a performance bond. Its the minimum amount of money required to be in your account with your broker in order to trade a particular futures contract or futures option contract. This amount of money varies from market to market and can differ for daytrading versus position trading (that is, holding positions overnight). The purpose of this deposit (or earnest money) is to make sure that whoever is trading has money in their account to pay for possible losses on that trade ...