Margin and Leverage in Futures

Margin is one of the most misunderstood parts of futures trading. In stocks, margin means borrowing money. In futures, it means something different: a deposit that shows you can cover daily losses. Understanding the difference, and how it creates leverage, is essential before you place a trade.

Key points

• Futures margin is a good-faith deposit, sometimes called a performance bond. It is not a down payment or a loan.
• Initial margin is required to open and hold a position overnight. Maintenance margin is the minimum you must keep.
• Day-trade margin is set by your broker for positions closed the same session and can be far lower than exchange margin.
• Leverage = notional value ÷ margin. Low margin means high leverage.
• If your account falls below maintenance margin, you get a margin call or your broker may close positions.
• Decide size from your risk per trade, not from how many contracts your margin allows.

Margin is a deposit, not a price

When you buy a futures contract, you don't pay its full value. You put up margin, a good-faith deposit held against the position. The clearing house uses margin to make sure losses can be paid each day when accounts are marked to market. You don't borrow the rest, and you pay no interest on it. But your gains and losses are based on the full contract value.

Three kinds of margin

• Initial margin is set by the exchange (CME Group) for holding a position. Brokers can require more but not less for overnight positions.
• Maintenance margin is the lower level your account must stay above while you hold the position. Initial margin is set above maintenance margin.
• Day-trade (intraday) margin is set by your broker for positions opened and closed in the same session. It can be much lower than exchange margin. For example, NinjaTrader's pricing page lists $50 for MES and $500 for ES. Other brokers set their own levels; compare them on our broker rankings.

Exchange margins change with market volatility. When markets become more volatile, CME can raise margins with short notice, and brokers follow. Always check current figures with your broker before trading.

How leverage works

Leverage is the ratio of the exposure you control to the money you post.

Worked example: MES leverage

Suppose the S&P 500 futures price is 6,000. One MES controls 6,000 × $5 = $30,000 of exposure. If your broker's day-trade margin is $50, that is $30,000 ÷ $50 = 600-to-1 leverage on the margin posted.

A 1% move in the index is 60 points. On one MES, that is 60 × $5 = $300, six times the $50 margin. A move that would barely register in a stock portfolio can wipe out the margin on a futures position several times over.

Worked example: ES leverage

One ES at 6,000 controls $300,000. With $500 day-trade margin, leverage is again 600-to-1. A 1% move is $3,000 per contract.

Worked example: crude oil

With crude at $70.00, one CL controls 1,000 barrels, or $70,000. A $2.00 move, which can happen in a single volatile day, is $2,000 per contract. One MCL controls $7,000 and the same $2.00 move is $200.

You can check notional value with our contract value calculator and margin needs with the margin calculator.

Margin calls

When losses push your account below the maintenance margin, you get a margin call. You must deposit enough to bring the account back to the initial margin level, or reduce your position. Many retail brokers don't wait: their risk systems can close positions automatically when the account falls below required margin.

Worked example: a margin call

These numbers are made up to show the mechanics. Suppose a contract has an initial margin of $1,000 and a maintenance margin of $900. You open one contract with $1,000 in your account.

• The position loses $150 by the daily settlement. Your account is now $850, below the $900 maintenance level.
• You receive a margin call to deposit $150 and bring the account back to $1,000, the initial margin.
• If you don't, the broker can close the position.

Day-trade margin has conditions

Low intraday margin usually applies only during certain hours. Brokers typically require you to close positions or have full exchange margin in your account before a cutoff near the end of the trading day. If you hold past that cutoff without enough funds, the broker may liquidate the position. Read your broker's margin policy for the exact time.

Low margin is not low risk

Margin tells you the minimum needed to open a trade, not how much you can afford to lose. Imagine a $2,000 account trading MES at $50 margin. The margin would allow 40 contracts. A 10-point move against 40 MES is 10 × $5 × 40 = $2,000, the entire account. A disciplined trader risking 1% ($20) with a 4-point stop would trade just one MES ($20 risk).

Size positions from your risk per trade, not from the margin requirement. That method is explained step by step in Position Sizing and Risk per Trade.

Margin in prop firm accounts

In a prop firm evaluation, you don't deposit margin. The firm sets a maximum drawdown and a maximum number of contracts instead. The drawdown is effectively your risk capital. A "50K" account with a $2,000 drawdown gives you $2,000 to lose, not $50,000. See How Prop Firm Evaluations Work and compare firms on our prop firm rankings.

Next lesson

Knowing your margin and leverage is only useful if you can control entries and exits. Continue with Futures Order Types: Market, Limit, Stop and Bracket Orders.

Frequently asked questions

Is futures margin a loan?

No. It is a deposit held against your position. You don't borrow the rest of the contract value or pay interest on it.

Who sets futures margin?

The exchange sets initial and maintenance margin for overnight positions. Brokers set their own day-trade margins and can require more than the exchange minimum.

Why does margin change?

Exchanges adjust margin as volatility changes. Higher volatility usually means higher margin requirements.

What happens if I can't meet a margin call?

Your broker can close some or all of your positions. If losses exceed your account balance, you still owe the difference.

Should I trade the maximum contracts my margin allows?

No. Margin is a minimum, not a target. Size trades from the dollar amount you are willing to lose on each trade.