What is Margin in Futures Trading?

The word "margin" means something different in futures than it does in stocks. In stocks it means that you're borrowing money and paying interest to hold a position. In futures, it simply refers to the amount of money that you need to have in your account.

The margin required for a futures contract is better described as a performance bond or good faith money. The levels are set by the exchanges based on volatility (market conditions) and can be changed at any time.

Generally futures margins are much less than the 50% minimum required for leveraged stock trades. The performance bond (margin) requirements for most futures contracts range from 2% to 15% of the value of the contract with a majority in the 5% area. Margin for single-stock futures is set at 20% of the contract value. These initial margin requirements are what provide the power of leverage to a commodity trading.

Of course, futures margins refer to the minimum required balances to place a trade. You certainly are free to maintain a much higher balance - or even the full contract value (100%)—in your commodity trading account. Once your position is established, you are required to keep a "maintenance margin” amount in your account per each contract you hold or risk having your commodity broker close your position.