Energy Investing For Dummies
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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.

About This Article

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About the book authors:

Nick Hodge is the founder of the Outsider Club, a community of retail investors looking to take personal control of their finances, and managing editor of Early Advantage, an investment advisory service that focuses on energy and resources. Jeff Siegel is an analyst and writer specializing in energy investing, with a focus on alternative and renewable energy. Christian DeHaemer is managing editor of the investment newsletter Crisis & Opportunity, and publishes a weekly column in Energy & Capital. Keith Kohl is the analyst and chief investment strategist for the investment advisories Energy Investor and Oil & Gas Trader.

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