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Initial margin on futures calculation

Initial Margin is the initial deposit you make to your broker when you open a new futures position whether long or short.

Initial Margin - Introduction

Initial margin, also known as Futures Requirement, Original Margin or Initial Margin Level (IML), is the first of three futures margins that all futures traders must be familiar with before actually trading futures. Yes, futures margin is definitely the most confusing aspect of futures trading that all beginner futures traders struggle with. Initial margin is the first of these margins and is actually nothing more than a deposit you give to your broker when you open any futures positions. This initial margin is to be paid no matter if you are the long or the short in this new position. That's right, you need to pay eventhough you are "Selling" or "writing" a new futures contract.

This free tutorial shall explain in depth what Initial Margin is, how it is calculated and how it affects your futures trading. Read the full tutorial on futures margin.

What is Initial Margin in Futures Trading?

Initial margin is one of three margin terms that all futures traders must understand. The other two being Maintenance Margin and Variation Margin. Initial margin is the initial deposit you need to make in order to open a new futures position. Indeed, the term "Margin" in futures trading is just a fanciful industry term for "Deposit". This initial margin varies according to the underlying asset that is covered. Some assets require a high amount of initial margin while some assets require only a very low amount of initial margin. Initial margin is always calculated based on a certain percentage of the total value of the assets covered and is normally quoted directly as a dollar amount by your futures broker.

The picture below displays the actual futures chain for AAPL's June 2010 Single Stock Futures. You would see that the Initial Margin is 25% of the price of AAPL and quoted directly in actual dollar amount.

The amount of initial margin required is...

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Popular Q&A

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How to calculate futures margin? All About Futures Margin.

You will hear about futures margin quite often when trading futures and commodities. In a nutshell, futures margin is the amount of money you have to put up to control a futures contract.

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