Now that we\u2019ve introduce you to some of mechanics of trading futures, including the roles of commoditized contracts, let\u2019s turn your attention to the use of margin.<\/p>\n
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.<\/p>\n
The exchange monitors the price variation of its contracts over time, and will set the margin according to the volatility of each underlying.<\/p>\n
Investors should be aware that margin requirements can and will change from time-to-time, especially in the event of market volatility. <\/strong><\/p>\n 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.<\/p>\n 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.<\/p>\n 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.<\/p>\n You may also want to keep in mind that futures:<\/p>\n