Commodity Margin Explained: Understanding Initial & Maintenance Requirements

A commodity margin is the minimum sum you must invest into your trading account in order to trade a futures contract. There is an initial margin, like a minimum deposit on a bank account, and then a maintenance margin, similar to a minimum balance in a bank account. If you do not meet these minimums, your broker will close your account.

Maintenance Margin

Once you have deposited your initial margin, you will see your account fluctuate through profits and losses on your futures contracts. If your account is profitable, your maintenance margin will be met without your depositing any further money into the account. If your account is not profitable, you may need to invest more cash.

Margin Call

If you are short of your maintenance margin, you will receive a margin call from your broker. At that point, you can opt either to deposit more money or close the account and liquidate the funds. You do have the option not to respond to the call, but the broker will simply close the account for you in this case. The broker can do this at any time, so your losses may be greater if you exercise this option than if you respond to the call.