Initial Margin vs. Maintenance Margin

There are two types of margin requirements in futures:

• Initial margin is the amount of funds that you must deposit when the positions are initially put on.
• Maintenance margin is the minimum balance that must be maintained in a trading account to keep positions.

Don't make the common beginner's mistake of trying to add the two numbers together. Rather, think of maintenance margin as a subset of initial margin.

Maintenance margin is usually a smaller number than initial margin and really doesn't come into play unless the account balance is shrinking due to losses. If the value of the account balance falls below maintenance level then you're required to get the account back into compliance (a margin call). You can do this by either sending more money (raising the balance back up to initial margin) or lightening up your position (lowering the initial margin back down to the balance).

Here are a few sample margin requirements (as of 9/01/09):

Notice that maintenance margin is usually a smaller number than initial margin. In the case of the DJIA ($5) futures contract, you'll need at least $6,500 (initial margin) in your account to buy or sell a single contract. To trade 10 contracts you'll need $65,000 (10 x $6,500).

If the value of your account balance falls below $5,200 per contract (maintenance margin), you'll get a margin call requiring that you bring your balance back to at least $6,500 times the number of contracts you hold. Or, you can choose to offset all or part of the position.