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Initial, maintenance and day-trade margin

Lesson 9 · about 9 min

Margin in futures is not a loan and does not accrue interest. It is a performance bond: cash the clearing house holds so that if you lose money and vanish, the loss is covered. Three different margin numbers apply to the same contract, and which one is in force depends on the time of day and on what your broker has decided to allow.

The three numbers

Margin type Who sets it When it applies Illustrative (ES) Illustrative (MES)
Initial Exchange (broker may add) To open a position held past the close $16,000 $1,600
Maintenance Exchange (broker may add) Minimum equity to keep holding it overnight $14,500 $1,450
Day-trade Broker only Intraday, closed before the broker's cut-off $500 $50

The exchange numbers move. CME resets them as volatility changes, sometimes several times a month in stressed periods, and always upward when markets get wild. The figures above are the right order of magnitude for recent years, nothing more. Look up today's before relying on any calculation.

Initial versus maintenance

Initial margin is what you must have in the account to open a position that will be held through the daily settlement. Maintenance margin is the lower level your equity is allowed to fall to before the broker demands more. The exchange typically sets initial at 110% of maintenance for speculative accounts (hedgers may get maintenance-level margins).

The gap between them is a buffer. Say initial is $16,000 and maintenance is $14,500 on ES. You open one contract with exactly $16,000 in the account. Your equity is marked every day. If losses take equity below $14,500, a margin call is issued: you must bring the account back up to initial ($16,000), not merely back to maintenance, or the broker closes the position. That $1,500 buffer is 30 ES points, or about 0.6% of the index. It is not much.

Day-trade margin

Day-trade (or intraday) margin is something else entirely. The exchange has no such concept; it is a discount the broker offers on positions that will be closed before a cut-off time the broker specifies, typically 10 to 15 minutes before the daily close or maintenance break. Brokers offer it because they can monitor your account in real time and force-close you long before the loss approaches the money you posted.

Typical day-trade margins from retail futures brokers have been in the range of $500 to $1,500 per ES contract and $50 to $150 per MES, though some advertise less and some require more. Two facts about them:

  1. They can be raised without notice. On FOMC days, around major economic data and during high-volatility periods, brokers commonly raise intraday margins to exchange initial levels or switch them off altogether. If your plan requires the discount to exist, your plan fails on the days that matter most.
  2. They are not a risk limit. A $500 margin on a contract with $250,000 of notional exposure says nothing about how much you should risk. Lesson 4 is about this.

The cut-off

If you are still holding at the broker's intraday cut-off time, the position converts to an overnight position and must meet full initial margin. If the account cannot, the broker liquidates, usually at market, usually with a fee, and usually in the thinnest minutes of the day. Every broker publishes the time; it differs by product because settlement times differ (Module 4). Put the cut-off for every product you trade in your plan and set an alarm 15 minutes before it.

Key idea: Initial is what you need to open an overnight position, maintenance is the floor before a call, and day-trade margin is a broker discount for intraday positions that can be withdrawn any time. None of the three is a measure of how much you can afford to lose.

Margin as a percentage of notional

It helps to see margin as a fraction of what it controls:

Contract Notional (illustrative) Initial margin Margin as % of notional Day-trade margin Day-trade as %
ES $250,000 $16,000 6.4% $500 0.2%
MES $25,000 $1,600 6.4% $50 0.2%
CL $78,000 $6,000 7.7% $1,000 1.3%
GC $230,000 $11,000 4.8% $1,000 0.4%

The exchange's initial margin is roughly its estimate of a bad one-day move: a 6% margin on ES covers about a 6% drop, which is worse than almost any single day outside a crisis. That is the whole design. The day-trade discount reduces that to a fraction of a normal day's range, which is why it only works when someone is watching the account minute by minute.

Try it: On your broker's margin page, find the exchange initial and maintenance margins for MES and MCL and the broker's day-trade margin for each. Compute margin as a percentage of notional for all four numbers. Then find and write down the intraday cut-off time for each product.

Recap

  • Initial margin opens an overnight position; maintenance is the floor before a call; both are set by the exchange and adjusted for volatility.
  • A margin call must be met back up to initial, not just to maintenance.
  • Day-trade margin is a broker discount, not an exchange concept; it can be raised or removed without notice.
  • Positions held past the broker's cut-off must meet full initial margin or are liquidated.
  • Exchange margin is roughly a bad day's move; day-trade margin is a fraction of a normal one.

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Margin and leverageA small deposit controlling a much larger position, and the point at which losses trigger a margin call.Position you controlnotional value $100,000your margin deposit: $5,000$100,000 / $5,000 = 20:1 leverageYour deposit absorbs every dollar of loss$5,000$2,500$0Equity leftMARGIN CALLequity has fallen to $2,5000%1%2%2.5%3%4%5%How far the price moves against you
Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.
A range beside a trendOne chart swinging between a flat floor and ceiling, another stepping upwards inside a pair of sloping lines.Range-boundresistancesupportprice bounces between two levelsTrendingthe trend channelhigher highs and higher lowsA range has two flat edges; a trend has two sloping ones.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.