Online Test Banks
Score higher
See Online Test Banks
Learning anything is easy
Browse Online Courses
Mobile Apps
Learning on the go
Explore Mobile Apps
Dummies Store
Shop for books and more
Start Shopping

Energy Investing: Understand the Margin in Futures Trading

For an energy investor, a margin is the minimal amount of money needed to trade a futures contract through your broker. Basically, the margin is in place to guarantee that you have the money to settle potential losses from a trade.

Unlike stocks, where you can sometimes trade on large margins (with a 50 percent margin, you can trade $10,000 worth of stock with only $5,000), futures contracts have a much lower margin, usually between 5 and 15 percent of the contract, that is enforced by the exchange. Different types of margins include

  • Initial margin: The amount of capital necessary to initiate a futures position. The exchange sets the initial margin.

  • Clearing margin: A safeguard that ensures that both clearing brokers and corporations conduct the open contracts of their customers.

  • Customer margin: This ensures that both buyers and sellers of futures contracts fulfill their contract obligations.

  • Maintenance margin: The minimum margin per outstanding futures contract that you must have to keep your margin account.

The final type of margin, the day-trade margin, is set by your brokerage firm, rather than the exchange on which the commodity trades. Contact your individual broker for more details. As an example, TD Ameritrade’s day-trading margin requirement is $25,000. So to conduct futures trades, you must have minimum capital of $25,000 in your account at the start of the day.

blog comments powered by Disqus

Inside Sweepstakes

Win $500. Easy.