Margin Calculations

With the two requirements defined, work through how equity actually moves day to day. The one point the exam hammers here is where a margin call has to bring you back.

Initial Margin

Opening a position is the simplest calculation in the unit.

• Initial margin: to open a position, the trader deposits the exchange-set initial requirement per contract. Multiply the per-contract requirement by the number of contracts.
• Illustrative example (hypothetical figures): if a contract's initial requirement is $5,000 and its maintenance requirement is $4,000, opening one contract requires $5,000 on deposit. Opening three contracts requires $15,000.

Note: these dollar figures are illustrative only. Actual per-contract requirements vary by contract and change constantly, so do not memorize the amounts. The exam tests the mechanics, not a specific number.

Maintenance and Variation Margin

Once the position is open, its value is trued up every single day, and that daily settlement is what can trigger a call.

• Maintenance margin: the minimum equity that must stay in the account. If equity falls below maintenance, a margin call (also called a performance-bond call) is issued.
• Restore to the INITIAL level: on a futures margin call, the trader must add funds to bring equity back up to the initial requirement, not merely back to the maintenance level. This is the classic exam trap.
• Variation margin: the daily cash that settles the day's gains and losses through mark-to-market. At each day's settlement price, losers pay variation margin into the clearinghouse and winners receive it, so accounts are trued up daily.
• Mark-to-market: the daily repricing of every open position to the exchange's settlement price. It is what produces the variation-margin cash flows.

Think of it this way: picture the maintenance level as a line painted partway down a fuel gauge and the initial level as full. Losses burn fuel toward that painted line. The moment you cross below it, you cannot just add a splash to get back over the line, you have to fill the tank all the way to full (the initial requirement) before you can keep driving.

Using the illustrative figures: if equity in a one-contract account falls from $5,000 to $3,700 (below the $4,000 maintenance level), the call is for $1,300 to restore the full $5,000 initial requirement, not $300 to reach maintenance.

Exam Tip: Gotchas

• A futures margin call restores equity to the INITIAL requirement, not to maintenance. This is the most-flipped fact in the unit. A securities maintenance call restores only to the maintenance level, so the exam bait is to apply the securities rule to a futures account. If a choice says the futures trader only has to reach maintenance, it is wrong.
• Maintenance is the trigger; initial is the destination. Equity dropping below maintenance is what fires the call, but the amount owed is whatever brings the account back to initial.

Effects of Substantial Price Movement

Because settlement is daily, a big price swing shows up in the account fast, in either direction.

• Adverse move: a large move against the position drains equity through daily mark-to-market. If it pushes equity below maintenance, a call is issued to restore equity to the initial level.
• Favorable move: a large move in the trader's favor credits the account through variation margin and can push equity above the initial requirement, creating withdrawable excess.
• Speed: substantial moves can trigger calls quickly, because settlement (and therefore mark-to-market) happens every business day rather than only at expiration.

Effects of a Change in Requirements

The account balance is not the only thing that moves. The requirement itself can change while a position is open.

• New positions: if an exchange raises the initial requirement, newly opened positions must meet the higher amount.
• Existing positions: a requirement change can apply to positions already open, so a trader may have to deposit more on a contract held from before the change, even without trading.
• Direction: exchanges usually raise requirements when volatility rises and may lower them when volatility subsides.

Exam Tip: Gotchas

• A requirement increase can force a deposit on a position you already hold. Students assume a new requirement only affects future trades. It can reach back to open positions, so an existing holder may get a call purely because the exchange raised the level.

Withdrawal of Excess Equity

The floor on what a trader can pull out is a common mirror-image trap to the margin-call point.

• Excess equity: account equity above the initial requirement.
• Withdrawal: the trader may withdraw that excess, or use it to post margin on additional positions. Equity can be pulled out down to the initial requirement.
• The floor is initial, not maintenance: equity is not locked in once it exceeds the initial level, but the trader cannot draw the account below the initial requirement while the position stays open.

Exam Tip: Gotchas

• The withdrawal floor is the initial requirement, not maintenance. A trader can pull excess down to initial, but not below it. Do not confuse the withdrawal floor (initial) with the call trigger (maintenance): equity may sit between them without a call, yet it cannot be withdrawn below initial.