The cash which a futures trader has to deposit in a margin account as security for guaranteeing a contract fulfillment at the time a futures market position is established (as part of margin requirements). At the end of each trading day, the margin account will be adjusted to gains and losses through a technique called marking to market.
Initial margin is required by the exchange where trading takes place to set up a futures position (sell or buy side). The exchange determines the margin amount, while the broker may be required to secure additional funds for deposit. This margin helps a trader carry a contract past the daily closing time at the exchange. It is a requirement that every trader has in a trading account an amount equal to the initial margin.
Later on, another type of margin, namely, the maintenance margin, would be required- it is the minimum amount that must be maintained in a trading account, at any given time. Once the initial margin requirement is properly maintained, a trader would be required to maintain the maintenance margin balance until the position is closed/ liquidated.
The maintenance margin may be a bit below the initial margin. However, if the balance in the account drops below the maintenance margin level, a trader (accountholder) will receive a margin call (from the broker) to replenish the account balance up to the initial margin level.
It is also known as an overnight margin or an initial deposit.
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