Margin and margin call
Margin is the money you set aside as a buffer to hold a leveraged position, such as a futures contract. It is not extra spending power. A margin call is a broker's demand for more money when losses eat into that buffer.
What margin is
When you open a futures position, you do not pay its full value. You put down a deposit, called the initial margin, which is meant to absorb daily gains and losses. The position is much larger than the deposit, which is why losses can be much larger than expected too.
Why the balance changes every day
Positions are marked to market each day. A gain is added to your margin balance and a loss is taken from it, even though you have not closed the trade. That is why your account can look different the next morning without you selling anything.
What a margin call is
If losses reduce your balance below the level required, the broker asks you to add money, usually within a short time. If you cannot, the broker can close part or all of your position, often at a bad moment. You can be right about the direction of the price and still be forced out because of how far it moved first.
Who sets the amounts
The required margin is set by the exchange and the broker, and it changes with the risk of the contract. Check the current requirement for a contract before you rely on a remembered figure. Maetis does not give trading advice.
A margin call (imaginary contract, hypothetical numbers)
Suppose, for an imaginary contract, you put down ₹10,000 of margin to hold a position, and the broker requires at least ₹7,000 to stay open. A fall in price takes ₹4,000 from your balance, leaving ₹6,000. That is below the level required, so the broker asks you to add money. If you cannot, the position can be closed even if the price later recovers.
Common questions
- What is margin in simple words?
- Money set aside as a buffer so you can hold a larger position than you could pay for in full.
- What is a margin call?
- A broker's request for more money when your losses have eaten into your margin.
- Is margin free extra money to trade with?
- No. It is a buffer for your own losses, and a larger position than your money alone could buy raises the risk.
- What happens if I cannot meet a margin call?
- The broker can close your position, often at a loss, to protect itself.