Skip to content
GetProfitable
Search

Futures: notional versus margin

Lesson 15 · about 9 min

Futures are the market where beginners most often misunderstand how big their position is, because the number they deposit (margin) is tiny compared with the value they control (notional). The margin is a performance bond, not the price of the contract.

Notional value

notional = index or price level × dollar value per point

Contract Level (illustrative) $ per point Notional
ES 5,000 $50 $250,000
MES 5,000 $5 $25,000
NQ 18,000 $20 $360,000
MNQ 18,000 $2 $36,000
CL 78.00 $1,000 $78,000
MCL 78.00 $100 $7,800
GC 2,300 $100 $230,000
MGC 2,300 $10 $23,000

One ES contract is a quarter of a million dollars of exposure. When the index moves 1%, or 50 points, that contract moves 50 × $50 = $2,500, whether you have $2,500 or $250,000 in the account.

Margin: what you actually deposit

The exchange sets an initial margin to hold a contract overnight, adjusted for volatility. For ES it has been in the low-to-mid five figures in recent years; for MES roughly one-tenth of that. Brokers may add to it.

Separately, many brokers offer a much lower intraday or "day-trade" margin, sometimes $500 or less per ES contract, as long as the position is closed before the session ends.

Now compute the leverage those deposits imply:

Deposit Notional (ES at 5,000) Implied leverage
Exchange overnight margin, say $15,000 $250,000 16.7×
Broker day-trade margin, $500 $250,000 500×

A $500 day-trade margin is 500× leverage. The broker permits it because they will force-close you long before a $500 loss becomes their problem. It is not a suggestion of how much you should risk.

Key idea: Futures margin is a deposit, not a price. The position is the notional. Size from the stop in points, then check that the margin is comfortably covered; never size from the margin.

The $5,000 account, one contract

Account $5,000, risk 1% = $50. Consider a 10-point stop on the S&P.

Contract Loss at 10-point stop As % of account Verdict
ES (1 contract) 10 × $50 = $500 10% Ten times the plan
MES (1 contract) 10 × $5 = $50 1% Exactly the plan

The trader with a $500 day-trade margin can hold 1 ES with this account. The trader who has done the arithmetic knows that one ES contract is ten times too big and that MES is the right product. Same market, same idea, same stop; one of them survives a normal losing streak and one of them does not.

Extend it. Ten straight 10-point losses:

  • 1 MES: 10 × $50 = $500 lost, a 10% drawdown. Recoverable.
  • 1 ES: 10 × $500 = $5,000 lost. The account is gone at trade 10, and in practice the broker closed it several trades earlier.

Daily range versus your stop

Another check is the contract's typical daily range in dollars. If the S&P moves about 1% on an average day, that is 50 ES points, or $2,500 per contract. For a $5,000 account, an average day's range in one ES contract is half the account. In MES it is $250, or 5%.

A useful rule: an average day's range in one contract should not exceed something like 5% to 10% of your account. Anything beyond that means an ordinary day can do extraordinary damage.

Margin and the overnight hold

If you hold through the close, the overnight margin applies. With a $5,000 account and an exchange margin of, say, $1,500 per MES, you can hold about three MES overnight before the broker intervenes. That is a permission, not a target; the stop math still decides how many you should hold, and it usually says fewer.

If the account cannot meet overnight margin, the broker liquidates at or near the close, often at a poor price. Know the margin schedule of every contract you trade, and know your broker's cut-off time.

Costs in R

Futures commissions are per contract per side, often around $1 to $3 for micros and $2 to $5 for full-size contracts including exchange fees. On 2 MES with a $40 risk per contract (1R = $80 total):

  • Round-trip cost ≈ 2 contracts × 2 sides × $1.50 = $6, or 0.075R.

Fine. On 1 ES scalped for a 2-point target ($100) with a 2-point stop ($100):

  • Round-trip cost ≈ $5, or 0.05R, but the tick size (0.25 = $12.50) means slippage of one tick each way is another $25, or 0.25R.

Tight-stop futures scalping pays a large share of every R to costs, which is Module 3's point in another market.

Try it: Pick one contract you might trade. Find its current exchange initial margin and your broker's day-trade margin. Compute the implied leverage for each. Then compute the loss on one contract for an average day's range and express it as a percentage of your account.

Recap

  • Notional = price level × $ per point; one ES at 5,000 is $250,000 of exposure.
  • Margin is a deposit; a $500 day-trade margin on ES implies 500× leverage.
  • Size from the stop in points, then confirm the margin is covered, never the reverse.
  • On a $5,000 account a 10-point stop is 1% in MES and 10% in ES; micros exist for this reason.
  • An average day's range in one contract should be a small share of the account; know the overnight margin and cut-off.

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.
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.
Risk and reward on one tradeA price scale showing an entry with a stop two points below and a target six points above, so the reward band is three times the risk band.PRICETARGET 106.00ENTRY 100.00STOP 98.00REWARDRISK6.00 pointsthree times the risk2.00 pointsthe most you loserisk : reward = 1 : 3
Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.