Download the Schwab app from iTunes®Get the AppClose

Benefits of Futures: Margin

Click to show the transcript

You've probably heard the term margin before but do you know what margin means? Because when we talk about security's margin and futures margin, we're really talking about two very different things and understanding the difference is important in the securities world. Margin is the money you borrow as a partial down payment up to 50% of the purchase price to buy and own a stock bond or ETF. This practice is often referred to as buying on margin.

So how is futures margin different?  Futures margin is the amount of money that you must deposit and keep on hand with your broker when you open a futures position. It's not a down payment and you don't own the underlying commodity.

The good news is that futures margin generally represents a smaller percentage of the notional value of the contract typically 3 to 12 percent per futures contract as opposed to up to 50% of the face value of securities purchased on margin when markets are changing rapidly and daily price moves become more volatile. Market conditions and the clearinghouses margin methodology may result in higher margin requirements to account for increased risk when market conditions and the margin methodology warrant margin requirements may be reduced. Now let's look at some types of futures margin.

Initial margin is the amount of funds 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. The other type is maintenance margin. Maintenance margin is the minimum amount that must be maintained at any given time in your account.  If the funds in your account drop below this level a few things can happen:  

You may receive a margin call where you will be required to add more funds immediately to bring the account back up to the initial margin level.  If you don't or can't meet the margin call you may be able to reduce your position in accordance with the amount of funds remaining in your account. Or your position may be liquidated automatically once it drops below the maintenance margin level. A small change in a futures price can translate into a huge gain or loss, so understanding how a futures margin works is essential to maximize the capital efficiencies that futures afford you.

Schwab has tools to help you mentally prepare for trading

Learn more >

Talk trading with a Schwab specialist anytime.
Call 888-245-6864
M-F, 8:30am - 9:00pm EST

Get 500 Commission-Free Online Equity and Options Trades for Two Years

Learn More >

The comments, views, and opinions expressed in the presentation are those of the CME Group. The content presented is intended for informational purposes only. Neither Charles Schwab Futures, Inc., nor Charles Schwab & Co., Inc., endorse nor can make a representation as to the accuracy, timeliness or completeness of the information presented.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

Hedging and protective strategies generally involve additional costs and do not assure a profit or guarantee against trading losses.

Futures trading offered and positions held through Charles Schwab Futures, Inc., a separate but affiliated company of Charles Schwab & Co., Inc. Both are subsidiaries of The Charles Schwab Corporation. Futures trading involves substantial risk and is not suitable for all investors. Please read Risk Disclosure Statement for Futures and Options.

For your protection, we are unable to accept instructions to change your email address sent in reply to this message. To update your address using a secure channel, please log in to your account.

We respect your privacy. To minimize your receipt of duplicate information and for internal recordkeeping purposes, Schwab may track responses, if any, to this offer. Read more about Schwab's privacy policy.

Notice: All email sent to or from the Charles Schwab corporate email system may be retained, monitored, and/or reviewed by Schwab personnel.

Charles Schwab & Co., Inc. (“Schwab”) (Member SIPC) and Charles Schwab Futures, Inc. (“Schwab Futures”) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Nothing here is an offer or solicitation of securities, products, or services by Schwab or Charles Schwab Futures in any jurisdiction where their offer or sale is not qualified or exempt from registration.

Charles Schwab & Co., Inc., 211 Main Street, San Francisco, CA 94105

©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.