Unlike stocks, the current price of a futures contract is not the amount of money needed to trade that contract. Instead, when you buy or sell a futures contract, you set aside a certain amount of money called margin. Futures margin is the amount of money you must deposit with your broker. You need to keep this amount on hand when you open a futures position. This also applies when you continue to hold a futures position. Note that this is different than margin in stocks. With stocks, you borrow against your assets like a loan. With futures, the margin acts like a good faith deposit. It also acts like a performance bond. This margin is set aside when the trade is placed. 

There are two types of futures margin: first margin and maintenance margin. The first margin necessity is the amount a trader must put up to enter a futures position. Once the position is established, the trader must meet the maintenance margin obligation. This obligation is typically about 10% less than the starting margin. Traders must keep this amount on hand to stay in the trade. For example, if the starting margin for the /ES was $6,600, buyers or sellers must have $6,600 in their account. This is needed to enter one contract. The maintenance margin was $6,000. After the trade is established, they must keep $6,000 in the account to stay in that one position. 

Both starting and maintenance margin levels are set by the exchanges. But, Charles Schwab Futures and Forex LLC reserves the right to increase margins at any time. This happens on volatile products. 

How margin works

So, what happens after a position is established? While margin requirements typically stay the same, what matters most is the account value. If the trade goes as hoped, the account value should increase. But, if the trade goes the opposite way, the account value will decrease. Let’s discuss how this works.

Unlike stocks, where profits and losses are only realized when a position is closed, futures contracts realize profits daily. Losses are also realized daily. Each trading day, the exchange determines futures’ settlement price. The settlement price is then used to decide if a realized profit is credited to your account. It also determines if a loss is debited to your account. This daily cash adjustment to the account is called mark-to-market and will happen automatically. 

For example, let’s say you bought one /ES contract at 2,495. The official settlement price for the day was 2,500. Your account would be credited a total of $250 (2,500 – 2,495 = 5 x $50 multiplier = $250). 

On the other hand, if you had a short position, you’d be debited $250.

Margin calls

If your account value falls below the maintenance margin need, you’ll be issued a margin call. 

To stay in the trade, you must meet the margin call. You need to bring the account balance back up to the first margin need. You can fulfill a margin call in one of two ways: 

• Deposit money into the account or liquidate other positions to meet the amount needed. 
• Close the position, which ends the need for the margin call. 

If appreciation puts the account back above the starting margin, it would end the need for a margin call. Still, margin calls can be liquidated at any time. 

Margin requirements for popular equity indexes

Now that you understand how futures margin works, here’s a sample of some popular equity indexes. This sample shows their contract sizes, tick sizes/values, and margin requirements. Keep in mind the margin requirements are prone to market volatility.

Beginning and maintenance margin requirements are precise as of January 2024. They are set by the exchanges and can change at any time. Your futures broker has different requirements.

Grasping the concept of the futures market can take some time, so let’s see it in action again. In the video below, a Schwab education coach provides an example. The coach demonstrates what happens to a short and a long position over a few days of trading.