Futures margin and collateral requirements work differently from stock margin: the deposit you post is a performance bond, not a loan, and it generally runs between 2% and 12% of a contract’s notional value, with a lower maintenance threshold your account must stay above once the position is open.1Charles Schwab. How Futures Margin Works You can post that bond in cash or in a defined list of non-cash assets, each discounted by a haircut. Getting the mechanics right matters, because the downside of a shortfall is not just a fee: it is forced liquidation and personal liability for whatever the liquidation does not cover.
The word “margin” trips people up because it means something different here than in a brokerage account. In stocks, margin is borrowed money, capped by Regulation T at 50% of the purchase price, and you pay interest on it.2FINRA. Margin Requirements In futures, you are not borrowing anything. CME Clearing calls the deposit a “performance bond held at CME Clearing to ensure that clearing members can meet their obligations.”3CME Group. Performance Bonds/Margins No loan, no interest. The regulator is the CFTC rather than the Federal Reserve or the SEC.
Initial Margin and Maintenance Margin
Two numbers govern every position. Initial margin is what you must have in the account to open the trade. Maintenance margin is the lower floor your equity must stay above once the trade is live. The gap between them is a cushion that absorbs small price swings before a call is triggered.
The dollar amounts vary by product and change with volatility. A single standard crude oil futures contract on NYMEX currently carries a maintenance margin above $11,000, with initial margin set higher.4CME Group. Crude Oil Futures Margins If your equity drops below the maintenance level after the daily settlement, you get a margin call demanding enough new funds to bring the account back up to the initial margin number, not just back over the maintenance floor.
Exchange Minimums, House Margin, and Intraday Rates
The clearinghouse sets a floor; your broker can and often does require more. House margin requirements sit on top of the exchange minimum and can be raised at any time without advance notice, based on account size, trading history, and market conditions.1Charles Schwab. How Futures Margin Works
Many brokers also publish a separate intraday margin, which is lower than the overnight requirement but only applies if you plan to close the position before the session ends. Hold the trade past the broker’s intraday cutoff without funding the full overnight amount, and the broker can close it for you and charge a liquidation fee.
Clearinghouses themselves use risk-based models to set their minimums. CME Group has long used the Standard Portfolio Analysis of Risk system (SPAN), which evaluates sixteen market scenarios to estimate the worst probable one-day loss on a portfolio, and is phasing in a successor called SPAN 2.5CME Group. Margin – Know What Is Needed CFTC rules require each clearing organization to use a risk-based model and to mark member positions to market at least once per business day.6GovInfo. 17 CFR 39.13 – Risk Management When markets become unusually volatile, exchanges can raise requirements rapidly, sometimes with same-day or next-day effect.
What Counts as Collateral
Cash in U.S. dollars is the simplest form of collateral and credits at face value. CME Clearing also accepts several major foreign currencies, including the euro, British pound, Japanese yen, and Canadian dollar, subject to position limits on how much foreign-currency collateral a clearing member can post.7CME Group. Acceptable Collateral
Beyond cash, the accepted list is broad: U.S. Treasury bills, notes, and bonds, Treasury Inflation-Protected Securities, government agency debt, mortgage-backed securities, corporate bonds, select equities and exchange-traded funds, money market fund shares, gold (both COMEX warrants and London bullion), and letters of credit.7CME Group. Acceptable Collateral Each category has dollar caps per clearing member.
Haircuts
Non-cash collateral is credited at less than market value. The reduction is called a haircut, and it covers the risk that the asset drops in price before it can be sold. For U.S. government securities, the discount typically runs from about 1% on short-term bills (under one year to maturity) up to 8% on bonds with more than fifteen years remaining.8The Options Clearing Corporation. Acceptable Collateral and Haircuts Exchange-traded funds are discounted more sharply. CME Clearing applies a 25% haircut to broad-market ETFs and a 3% haircut to select short-term Treasury ETFs.7CME Group. Acceptable Collateral
Posting Treasuries rather than cash lets a trader keep earning interest on money that would otherwise sit idle. That is why institutional accounts frequently post securities even after accounting for the haircut.
Daily Mark-to-Market
Every open futures position is repriced at the end of each trading session. The clearinghouse calculates a settlement price (typically a volume-weighted average of trades near the close) and adjusts each account accordingly. If the price moved in your favor, cash is credited as variation margin. If it moved against you, cash is debited the same day.
This is different from a stock position, where a drawdown has no cash impact until you sell. A losing futures position drains the account balance every evening. That daily settlement is the reason the deposit functions as a performance bond: the clearinghouse never lets unrealized losses pile up.
Margin Calls and Forced Liquidation
A margin call is triggered when the daily settlement leaves your equity below the maintenance margin. The deadline to meet it is short. Most brokers allow no more than one business day, and some require a same-day wire.1Charles Schwab. How Futures Margin Works
Miss the deadline and the broker can liquidate your positions at market prices without a second notice.1Charles Schwab. How Futures Margin Works They do not need your consent, they are not required to close positions in the order you would choose, and they typically charge a per-contract liquidation fee on top of normal commissions. The fee can run from a few dollars for a micro contract to $25 or more for a standard contract, depending on the brokerage agreement.
The authority to liquidate is not conditional on reaching you first. Customer agreements grant it, and both exchange rules and CFTC regulations back it up. Step away during a fast-moving market and you may come back to find the positions already gone.
When Liquidation Does Not Cover the Loss
Forced liquidation does not always end the obligation. If the market moves far enough against you that the proceeds do not cover the loss, your account goes negative and you owe the broker the difference. This is real personal debt.
The National Futures Association prohibits brokers from accepting any new orders for an account that carries a debit balance after all positions are closed. Before you can trade again, you must deposit at least enough to erase the deficit. For an individual account, the NFA considers a debit balance lasting five business days or more to be unreasonable, which exposes the firm to additional compliance scrutiny.9National Futures Association. Margins Handbook A broker cannot reclassify a trading deficit as a receivable to work around those restrictions.
If you cannot or will not pay, the broker can pursue collection, including legal action. Account closure and a referral to collections are the typical outcomes when a trader walks away from a negative balance.
Section 1256 Tax Treatment
Most exchange-traded futures contracts qualify as “Section 1256 contracts” under the Internal Revenue Code. Regardless of holding period, 60% of any gain or loss is treated as long-term capital gain or loss and 40% as short-term.10Office of the Law Revision Counsel. 26 USC 1256 – Section 1256 Contracts Marked to Market Because long-term rates are lower, the blended treatment can produce a tax advantage over short-term stock trading.
These contracts are also marked to market for tax purposes at year-end. If a position is open on December 31, you report the unrealized gain or loss as though you had closed and reopened the position at fair market value. You cannot defer gains simply by holding past the calendar turn.
Individuals who net a loss on Section 1256 contracts can elect to carry the loss back three years and offset Section 1256 gains reported in those earlier years. Corporations, estates, and trusts cannot make this election.11Internal Revenue Service. Form 6781 – Gains and Losses From Section 1256 Contracts and Straddles The carryback goes to the earliest eligible year first and cannot create or increase a net operating loss in the carryback year. You make the election on Form 6781, attached to an amended return or Form 1045 for the prior years in question.