Margin & Leverage in Futures

Summary

Futures margin is a performance bond, not a loan — and it's why one bad trade can wipe out an account overnight.

Margin is not what you think

In stocks, margin is money you borrow to buy more shares. In futures, margin is a performance bond you post to guarantee you'll pay any losses. There is no loan and no interest. Typical initial margin on the E-mini S&P is ~$13,000 — for $250,000 of notional exposure. That's roughly 20x leverage.

Maintenance margin and margin calls

Once positioned, your margin must stay above a maintenance level (usually 90% of initial). If it drops below, you receive a margin call — deposit more cash or the broker liquidates automatically. This can happen intraday and there is no grace period.

Daily mark-to-market

Every futures account settles P&L in cash every single trading day. If you lose $2,000 today, that cash leaves your account tonight. If you gain $2,000, it's deposited. This continuous settlement is why futures never have overnight credit risk between counterparties.

Why leverage cuts both ways

A 1% move on the S&P 500 is $2,500 per E-mini contract. On $13,000 of margin, that's a ~19% swing on your capital per 1% market move. This is why professionals use micro contracts (1/10th the size) or trade with much larger accounts than the minimum margin suggests.

(Educational simulation only — not financial advice. Practice everything below with $100,000 virtual cash on TradeHQ.)

Key takeaways

• Futures margin is a performance bond, not a loan.
• Accounts are marked-to-market every trading day.
• Maintenance breaches trigger immediate margin calls.
• Effective leverage is typically 15-25x.

Check your understanding

• Futures margin is best described as: Options: A loan; A performance bond; A fee; A tax. Correct answer: A performance bond. Why: It guarantees you'll cover losses — no borrowing.
• Futures accounts are marked-to-market: Options: Yearly; Monthly; Every trading day; Only at expiration. Correct answer: Every trading day. Why: Daily settlement moves cash in/out.
• 1% S&P move on $13K margin ≈ Options: 1%; 5%; ~19%; 50%. Correct answer: ~19%. Why: $2,500 on $13,000 ≈ 19%.
• A margin call means: Options: You made money; Deposit more or be liquidated; Exchange closed; Broker owes interest. Correct answer: Deposit more or be liquidated. Why: Immediate top-up or force-close.

Sources

• CFTC — Margin (https://www.cftc.gov/IndustryOversight/Intermediaries/index.htm)
• NFA — Trading with Leverage (https://www.nfa.futures.org/investors/investor-resources/index.HTML)

Practise this lesson

Open the practice desk and apply this lesson immediately with $100,000 in virtual cash. Concepts become usable when they are rehearsed under simulated conditions, not when they are read. Educational simulation only — not financial advice.