This concept will be better explained by using an example to compute the margin balance.
Let's start with a future's price of $200. The initial margin requirement is $10 and the maintenance margin is $6. The trader buy five contracts and deposits $50 (5 contacts x $10)

Day 0 - The ending balance is $50.
Day 1 - The price moves to $199.50. The adjustment that needs to be made is -$2.50 (200-199.5 x 5 contracts). The ending balance is now $47.50 ($50 - 2.50). Since this is above the maintained margin ($30) no funds need to be added to the account.
Day 2 - The price moves down to $195. The loss, based on five contracts, is $22.50, so the account balance is $25. This is below the maintenance margin. The trader will receive a margin call and will need to deposit $25 into the account to bring it back up to the initial margin requirement.

This continues over the course of the trade until it is closed out. Please follow the following charts:

For a long position of five contracts, initial margin = $5, maintenance margin =$3

Day Beginning Balance Funds Deposited Settlement Price Future Price Change Gain/Loss Ending Balance
0 0 25 50      
1 25 0 49.6 -0.4 -2 23
2 23 0 48 -1.6 -8 15
3 15 0 48.5 0.5 2.5 17.5
4 17.5 0 49.25 0.75 3.75 21.25
5 21.25 0 51 1.75 8.75 30

For a short position of five contracts, initial margin = $5, maintenance margin =$3

Day Beginning
Balance
Funds
Deposited
Settlement
Price
Future Price
Change
Gain/Loss Ending
Balance
0 0 25 50      
1 25 0 49.6 0.4 2 27
2 27 0 48 1.6 8 35
3 35 0 48.5 -0.5 -2.5 32.5
4 32.5 0 49.25 -0.75 -3.75 28.75
5 28.75 0 51 -1.75 -8.75 20

Learn more about what margin is, how margin calls work, how leverage can have advantages and why using margin can be risky in our Margin Trading tutorial.



Closing and Terminating a Futures Position

Related Articles
  1. Trading

    Intermediate Guide To E-Mini Futures Contracts - Margin

    Margin is essentially a loan that a brokerage firm extends to a client (the trader or investor) that is used for the purchase of trading instruments. Margin trading allows traders and investors ...
  2. Trading

    Margin Trading: Conclusion

    Here's the bottom line on margin trading: You are more likely to lose lots of money (or make lots of money) when you invest on margin. Now let's recap other key points in this tutorial: ...
  3. Trading

    Futures Fundamentals: Characteristics

    In the futures market, margin has a definition distinct from its definition in the stock market, where margin is the use of borrowed money to purchase securities. In the futures market, margin ...
  4. Trading

    Margin Trading: What Is Buying On Margin?

    The Basics Buying on margin is borrowing money from a broker to purchase stock. You can think of it as a loan from your brokerage. Margin trading allows you to buy more stock than you'd be able ...
  5. Investing

    How To Calculate Margin On The Series 3 Exam

    Learn what you need to know about margin to pass your Series 3 exam.
  6. Trading

    Explaining Initial Margin

    Initial margin is the percentage of a stock’s price an investor must have in his account to buy that stock on margin.
  7. Trading

    Margin Call

    Find out why a margin call is so important to investors.
  8. ETFs & Mutual Funds

    Leveraged Investment Showdown

    Margin loans, futures and ETF options can all mean better returns, but which one should you pick?
  9. Trading

    Margin

    Find out exactly what margin is and why it's important.
  10. Financial Advisor

    Margin Investing Gets A Bad Rap, But For The Thrill-Seeker, It's Worth It

    Investing on margin can be profitable but it's a risky play that needs care.
Trading Center