The term "margin" can be confusing to futures trading newcomers because it means something different in futures than it does in Forex. In forex, to buy forex on margin means that you're borrowing money and paying interest on those borrowed funds. In futures, margin simply refers to the amount of money that you need to have in your account in order to hold a position.

Actually, the margin required for a futures contract may be better described as a "performance bond" or "good faith" money. Margin requirements represent funds that your brokerage firm can draw on to cover losses as a market moves against your position. That's because, in futures trading, your account will be debited and/or credited daily as your positions are marked-to-the-market. When you close a position, the margin earmarked for that is freed up to take another position. Also, any final debit or credit based on your position will be made.

Margin levels are set by futures exchanges. They are largely based on volatility (market conditions) and can be changed at any time. These exchange-set margins are the minimum required to take a position, and many brokerage firms may require more margin than the exchange minimum. Generally, futures margins are slightly than the 2% minimum required by Saxo for forex trades. The performance bond (margin) requirements for most futures contracts range from 3% to 15% of the value of the contract. An exception is the margin requirement for single stock futures contracts, which is 20% of the contract value. Of course, you are certainly free to maintain a much higher balance -- or even the full contract value (100%) -- in your account.

Two types of margins exist in futures:

Initial Margin: The amount of funds that must be deposited by a customer when initiating a market position

Maintenance Margin: The minimum balance that must be maintained in a trading account to keep positions

Don't make the common beginner's mistake of trying to add the two numbers together. Rather, think of maintenance margin as a subset of initial margin.

Maintenance margin is usually a smaller number than initial margin and doesn't come into play unless the account balance is shrinking due to losses. If the value of the account balance falls below the maintenance margin level, you will receive a margin call to get the account back into compliance. You can do this by sending more money (thus raising the balance back up to the initial margin requirement) or lightening up your position (thus lowering the initial margin requirement back down to the balance).

Here are a few sample margin requirements (as of 12/23/02):

Example: E-Mini S&P
Initial: $3,563
Maintenance: $2,850

Here's an example of how futures margin works. In the case of the E-Mini S&P futures contract (shown in the table), you'll need at least $3,563 (initial margin) in your account to buy or sell a single contract. To trade 10 contracts, you'll need $35,630 (10 x $3,563). If you take a one-lot position in E-Mini S&P futures, and the value of your account balance falls below $2,850 (maintenance margin), you'll get a margin call requiring that you bring your balance back to at least $3,563. Or, you can choose to offset the position.

Remember that margin equals leverage in futures trading, not a down payment as it does in forex trading.