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Futures Margin

Lesson 6 of 11

Duration 2:35
Level Beginner
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Now that we’ve introduce you to some of mechanics of trading futures, including the roles of commoditized contracts, let’s turn your attention to the use of margin.

Most futures contracts require investors to post margin with their broker. While this is a good-faith deposit required of investors to help ensure they abide by the rules set by the exchange, brokerage companies can ask their clients to set aside more than this minimum amount.

The exchange monitors the price variation of its contracts over time, and will set the margin according to the volatility of each underlying.

Investors should be aware that margin requirements can and will change from time-to-time, especially in the event of market volatility.

The exchange is typically ambivalent to long or short positions, and charges the same margin requirement either way. Again, brokerage firms can augment the rules on this front should they choose.

To establish the margin requirement, exchanges typically calculate and post product price thresholds, that is the maximum permitted daily price move for a product, and use the value of that price change as the required margin.

In other words, should the price of a contract fall by its maximum permitted value, causing the exchange to suspend trading, investors holding long positions would face losses exactly equal to their margin requirement.

You may also want to keep in mind that futures:

  • provide extremely efficient and relatively low-cost investment opportunities,
  • providing tools for hedging and speculation without ever owning the underlying,
  • And as the futures markets continue to undergo an ongoing transformation to electronic trading, trading costs have been trending lower.

Overall, you should now be more familiar with futures market trading, including some of its products, risks and safeguards, as well as the difference between spot and forward prices, contango and backwardation, and other insights into market mechanics, including the roles of commoditized contracts and margin.

Resources

CME Group: Margin: Know What’s Needed

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If you have a general question, it may already be covered in our FAQs. If you have an account-specific question or concern, please reach out to Client Services.

8 thoughts on “Futures Margin”

  • Question

    Who earns the interest on collateral posted with IB? The investor or IB?

    • Interactive Brokers

      Thank you for your question. If you are referring to our interest program for instantly available cash balances, please note that it considers ending settled cash balances and collateral balance for settled short stock positions. You can review how it is calculated in more detail on our website: https://spr.ly/IBKR_InterestProgramCampus

  • DENZEL JU JACQUES

    Hello , I’m was just wondering if it’s possible for me to trade with just 500 dollars in my account , for one contract . Does it meet the minimum requirement for initial deposit ? Thank you .

    • Interactive Brokers

      Hello, thank you for asking. There is no minimum required deposit to open a Cash Account. Futures can be traded in a Cash account. Please use this webpage to view the Margin Requirements for a futures contract: https://spr.ly/CampusMarginRequirements

      Please use this tool on our website to review available funding methods, ETAs, and any associated fees based on your residency and the currency you wish to deposit: https://spr.ly/FundAccountcampus

      If you are interested in opening in an account: http://spr.ly/OpenAccountfromIBKRCampus

      Please reach back out with any additional questions. We are here to help!

  • Mike

    Hi,
    In one your replies, you mention that it is possible to trade futures using a cash account, contingent on margin requirements. But for example, in the case of MES – micro e-mini SP500 futures, if I set a buy order let’s say at 5600 with a $5 per point, the full value of the transaction is $28000. Do I need to have this full value of the contract in the cash account or the margin requirements is enough?

    Thank you in advance.

    • Interactive Brokers

      Thank you for reaching out. The margin requirement is sufficient. For more information on how margin requirements are calculated on futures and futures options, please review this FAQ:

      https://www.interactivebrokers.com/faq?id=34483471

      We hope this helps!

  • John

    Hi,
    In one your replies, you mention that it is possible to trade futures using a cash account, contingent on margin requirements. But for example, in the case of MES – micro e-mini SP500 futures, if I set a buy order let’s say at 5600 with a $5 per point, the full value of the transaction is $28000. Do I need to have this full value of the contract in the cash account or the margin requirements is enough?

    Thank you in advance.

    • Interactive Brokers

      Thank you for reaching out. The margin requirement is sufficient. For more information on how margin requirements are calculated on futures and futures options, please review this FAQ:

      https://www.interactivebrokers.com/faq?id=34483471

      We hope this helps!

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.

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