Margin and Mark-to-Market
Futures only require part of the value as margin, but P&L is settled at the settlement price every day at the close. Drop below maintenance margin and you must top up.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Futures Basics, lesson 3: “Margin and Mark-to-Market”
Futures only require part of the value as margin, but P&L is settled at the settlement price every day at the close. Drop below maintenance margin and you must top up.
A deposit, not the full price
To open you only deposit the initial margin. The account can't fall below the maintenance margin, or you'll get a margin call.
Every close, P&L really changes hands
mark-to-market: P&L is calculated every day at the settlement price and moved into or out of the margin account right away, instead of waiting until you close.
Leverage: small moves, big swings
A $6,000 deposit controls $80,000 worth of oil, about 13× leverage. A drop in oil of just 2.5% ($2) costs the account $2,000: a third of the deposit.
Key takeaways
- Initial margin: the deposit you put up to open a position, usually a small fraction of the contract value, so leverage is built in.
- Mark-to-market: every day, that day's P&L is moved into or out of your account at the settlement price, without waiting for you to close.
- When your account falls below maintenance margin, you get a margin call and usually have to top back up to the initial margin level.
- If you don't top up, your position is force-closed and the loss is locked in, even if the price later comes back.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Pick “Sharp drop” and advance day by day: on which day do you get a margin call? How much is left in the account then?
- Click “Top up to initial margin”: how much do you need to transfer from your bank? What do the “Total topped up” card and the account equity become?
- Start over and this time pick “Don't top up”: on which day is the position forcibly liquidated? What's the loss locked in at?
- Switch to “Mild”: with no closing, is each day's P&L still actually moved into and out of the account?
Quiz and explanations
- 1. Maintenance margin is $4,000 and your account drops from $6,000 to $3,500. What happens?
- Answer: You get a margin call.Your account is below maintenance margin, so you need to top back up to the initial margin level.
- 2. Mark-to-market means…
- Answer: P&L is settled every day at the settlement price.Gains and losses really move between accounts every day.
- 3. You open 1 long crude oil contract (1,000 barrels) at $80, with $6,000 initial margin and $4,000 maintenance margin. Below what settlement price is a margin call triggered?
- Answer: $78.You fall below maintenance only once losses exceed $6,000 − $4,000 = $2,000: $2,000 ÷ 1,000 barrels = $2, so below $78.
Terms in this lesson
- initial margin (Initial Margin): The deposit required to open a position, usually only a small fraction of the contract's value.
- leverage (Leverage): Controlling a large position with a small amount of margin; 1:100 means $1 controls a $100 position.
- maintenance margin (Maintenance Margin): The minimum margin your account must keep; fall below it and you'll be asked to top up.
- margin call (Margin Call): When your account drops below maintenance margin, you must add funds or your positions will be closed.
- mark-to-market (Mark-to-Market): Profit and loss is calculated at the settlement price every trading day and actually moved into or out of your margin account.