Futures initial margin and maintenance margin

Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.

What is the difference between initial margin and maintenance margin on a futures contract?

The initial margin is the amount a trader must deposit with their broker to initiate a trading position. The maintenance margin is the amount of money a trader must have on deposit in their account to continue holding their position, which is typically 50% to 75% of the initial margin.

What is maintenance margin on futures?

The maintenance margin is the amount of money you need to keep in your fund at any given time to cover your losses; if a futures position suffers a loss, you will need to put enough money in your account to return the margin to the initial or original margin level.

Why is initial margin higher than maintenance margin?

The maintenance margin represents the amount of equity the investor must maintain in the margin account after the purchase has been made to keep the position open. The higher initial margin limit is usually more relevant, so leveraged ETFs and call options are typically better for investors who want more leverage.

What is the initial margin on a futures contract?

The initial margin is the initial amount of money a trader must place in an account to open a futures position. The amount is established by the exchange and is a percentage of the value of the futures contract.

What is maintenance margin?

Key Takeaways. Maintenance margin is the minimum amount of equity that an investor must maintain in the margin account after the purchase has been made. Maintenance margin is currently set at 25% of the total value of the securities in a margin account as per FINRA requirements.

How do you calculate initial and maintenance margin?

The general formula is: ​Margin Call Price = Initial Purchase Price * (1 – Initial Margin percentage) / (1 – Maintenance Margin percentage)​. In the provided maintenance margin example, the initial margin is ​50 percent​ (the federal minimum) and the maintenance margin is ​25 percent​ (the FINRA regulatory minimum).

What is initial margin?

Initial margin is the percent of a purchase price that must be paid with cash when using a margin account. Fed regulations currently require that the initial margin is set at a minimum of 50% of a security’s purchase price. But brokerages and exchanges can set initial margin requirements higher than the Fed minimum.

How do you calculate maintenance margin in futures?

Initial Margin = SPAN Margin + Exposure Margin

1. The value of the initial margin varies daily as it depends on the futures price.
2. Remember, Initial Margin = % of Contract Value.
3. Contract Value = Futures Price * Lot Size.
4. The lot size is fixed, but the futures price varies every day.

How is initial margin calculated?

The total Initial margin requirement or credit for the product group is calculated by summing algebraically the total of the product group spread margin, the product group MTM margin, the product group premium margin and the total additional margin (or minimum margin) for the product group.

Is maintenance margin the same as variation margin?

Maintenance margin is an important factor to consider while calculating variation margin. It refers to the amount of money an investor must keep in his margin account when trading stocks. It is generally less than the initial margin required to make trades.

Who pays initial margin in futures?

At the time of taking the position you are required to pay the Initial Margin on the position (SPAN + Exposure margin). The SPAN margin is based on a statistical concept called VAR (Value at Risk). It basically means that the initial margin should be large enough to cover the loss of your position in 99% of the cases.

What is the difference between initial margin and variation margin?

Initial Margin is the minimum balance you need to have in your account to open a position. Variation Margin is the unrealised profit (or loss) on open positions or transactions.

Can you trade futures without margin?

Yes, you can trade futures without margin. What it requires is to have more than the normal worth of the contract in your trading account — for example, trading one standard contract for a contract that is worth $100,000 when you have $100,000 or more in your account.

What is VM and IM?

A key element to this is the requirement that financial firms and systemically important non-financial entities exchange both Variation Margin (VM) and Initial Margin (IM) to mitigate counterparty credit risk from uncleared OTC transactions.

What is OTC margin?

Financial Terms By: o. OTC margin stock. Shares traded over-the-counter that can be used as margin securities under Regulation T.

What is Vrms and VDC?

V rms is the effective value of the ac signal. V rms works out to (via the sqr root of the mean of the square of the signal function) = V max (or peak) divided by √2. This is for the whole AC signal. A DC voltage of the same value would dissipate as much power on the load (assume: resistor).

What is initial margin CSA?

In derivatives markets, initial margin is one of two types of collateral required to protect a party to a contract in the event of default by the other counterparty.

What is MTA in CSA?

Minimum Transfer Amount (MTA): The minimum amount that can be transferred for any margin call. The amount is specified in the margining agreement. Given below is an illustrative example of a standard CSA agreement and its resultant pay-offs.

What is the difference between initial margin and independent amount?

Independent Amount is the same concept as initial margin except that the term in- dependent amount only applies to uncleared OTC swaps that are collateralized and initial margin applies to derivatives of all types that are cleared.

What are the different types of margin payable on futures?

There are two main kinds of margin in the futures markets: initial margin and maintenance margin. Initial margin is the amount required by the exchange to initiate a futures position. While the exchange sets the margin amount, your broker may be required to collect additional funds for deposit.

Does initial margin change?

We typically change margins after a market closes because we have a full view of the market liquidity of that trading day. We provide at least 24 hours’ notice of margin changes to give market participants time to assess the impact on their position and make arrangements for funding.

Who sets the minimum maintenance margin requirements?

Financial Industry Regulatory Authority (FINRA) has set the minimum margin requirements for leveraged accounts at a maintenance margin at 25% of the total value of securities in a margin account.

How is maintenance margin set?

Maintenance Margin Definition

Currently the Financial Industry Regulatory Authority (FINRA) sets the maintenance margin at 25% of the total value of securities that a trader holds in their margin account. Specific brokerage firms also maintain their own requirements.

How are maintenance margins used?

The maintenance margin is the required percentage of the total investment that is less than the initial margin, and which the investor must maintain in their trading account in order to avoid a margin call – a demand from their broker that they either deposit additional funds into their account or liquidate a …