Share |
asked:

The commodity futures exchange allow people to take positions in their contracts with a much smaller amount of money than stock buyers are allowed. This trading without putting up 100% of the money is called going on margin.

The most a stock buyer can go on margin is 50%, in the wake of laws enacted following the 1929 stock market crash. Prior to that crash, it was normal for people to put up only 10% of the value of the stocks they were buying. Most stock buyers these days pay 100% up front.

But in the world of futures you’re not really buying anything — you’re contracting to supply or take delivery of a product.

The amount you put up to begin with is your initial margin. Then your account must continue to have about 70 to 80% of that. You are allowed to go a little below initial margin, because everybody understands the volatility of futures markets.

Your brokerage firm or individual broker decides whether you have enough money in your account to satisfy their margin requirements. At the end of the day your account balance is evaluated to see if you meet exchange set standards.

new site