• Skip to primary navigation
  • Skip to content
  • Skip to footer
StoneX®

Trade Futures, Spreads and Options with Confidence.

Top Navigation

  • Open a Futures Account
  • Sign Up
  • Log in
  • 1.800.800.3840

Primary Navigation Menu

  • About
    • Who We Are
    • Services
    • Risk Disclosure
    • COVID-19
  • Trade
    • Broker-Assisted
    • Self-Directed / Online
    • Request Pricing
  • Hedge
    • Ag Marketing Plan
    • WASDE Analysis
    • Grain Resources
    • Livestock / Dairy Resources
    • Request Pricing
  • Invest
    • Automated Strategies
    • Managed Futures
    • Request Pricing
  • Advisories
    • GENERAL / FUNDAMENTAL
      • DT Newsletter
      • Insider Market Advisory
      • Turner’s Take Newsletter & Podcast
    • TECHNICAL ANALYSIS
      • The Cullen Outlook
      • Data Feed Trade
      • Jarboe Trading Journal
      • Trade Spotlight
    • AG MARKETING
      • Cattleman’s Advisory
      • Technical Ag Knowledge
      • Turner’s Take Ag Marketing
    • THIRD-PARTY RESOURCES
      • CFRN
      • Moore Research Center, Inc. (MRCI)
      • OptionWorks®
      • TASMarketProfile.com
  • Education
    • CME Group Resource Center
    • CME Group Offers
    • Small Exchange Resources
    • Guides
    • Frequently Asked Questions
    • Order Entry Handbook
  • Blog
    • Futures 101
    • Ag Marketing
    • Tips & Strategies
    • Trading Advisories
  • Resources
    • Trading Software
    • Quotes and Charts
    • Futures Calendars
    • Contract Specifications
    • Margin Requirements
    • Futures Calculator
  • Accounts
    • Apply
    • Access My Account
    • Funding
  • Contact
 

Understanding How Futures Margin Requirements Evolve with Market Conditions

May 27, 2021 by Daniels Trading| Futures 101

Futures contracts are leveraged securities that enable traders to control a large quantity of an underlying asset with minimal cash. To facilitate these transactions, the trader makes a good-faith deposit known as a margin.

If you’re going to trade futures, then it is important to understand that margins are dynamic―as market conditions evolve, so do they. Read on to learn more about the functionality of futures margin requirements.

Who Determines Futures Margins?

When it comes to financial derivatives, margin requirements are key elements that influence many aspects of trading. As a general rule of thumb, the lower the margin, the greater a trader’s capital efficiency. And, although leveraging a small amount of money into larger returns is attractive, it is also risky. Margin requirements protect the exchange, broker, and trader from potential catastrophe.

Calculate and determine your risk or reward on potential trades. Access our  online futures calculator tool now.

So who sets the margins? Two entities set the futures margin requirements that traders must abide by:

The Exchange

First and foremost, the exchange is in charge of setting initial and maintenance margins. These values are assigned on a contract-by-contract basis and reflect current market conditions. At the Chicago Mercantile Exchange (CME), the markets and product margins are evaluated at the end of each trading day. If a change is warranted, participants are given at least a 24-hour notice.

The Broker

Brokerage firms are free to increase the exchange’s initial and maintenance margins as deemed fit. In addition, they are also able to offer clients reduced day trade margins. This is a key aspect of the futures industry because minimal day trade margins are implemented to attract the business of independent retail traders.

Why Do Margins Change?

At any given time, your trading margins are put forth by the exchange and your broker. Essentially, they represent the current degree of market risk. Remember, futures margin requirements are designed to protect the exchange, broker, and trader. To do so effectively, they must be flexible and evaluate market conditions in real time.

Here are three common reasons why margins change:

  • News cycle: A period of scheduled or surprise events may influence margin requirements. For instance, elections, armed conflict, and civil unrest are capable of increasing both market uncertainty and margins.
  • Participation: The sudden spike or recession of public participation can affect margins. As an example, trading margins during non-U.S. market hours are often increased due to the lack of consistent liquidity.
  • Volatility: Market volatility, both current and implied, is the primary driver of margin adjustments. Basically, the higher the volatility, the greater the risk―margin requirements are raised to manage the enhanced risk profile.

In many cases, these three factors are interrelated. For instance, a surprise news item may spike participation, which leads to an increase in pricing volatility. If the change in market conditions is dramatic enough, the exchange raises initial and maintenance margins in response. As a result, brokers pass the new requirements on to the trader while potentially making their own adjustments.

Several key events in 2020 brought periods of unprecedented volatility and repeated changes to futures margin requirements. During the March 2020 onset of COVID-19, the Chicago Mercantile Exchange (CME) adjusted margins frequently. For gold, the initial margin requirement was raised from $5,500 to $7,700; maintenance margins went from $5,000 to $7,000. From March 2-March 23, 2020, the CME raised margins six times on the E-mini S&P 500. In total, the E-mini S&P 500’s initial margin went from $6,600 to $12,000.

Ahead of the 2020 U.S. General Election, exchanges and brokers took a proactive approach. In this instance, margin requirements were raised in anticipation of extreme volatility occurring ahead of and on Election Day. When risk subsided following the election, margins were returned to previous levels.

Know Your Futures Margin Requirements!

At the end of the day, it is the trader’s responsibility to know and understand the current futures margin requirements. If they don’t, premature position liquidations or margin calls may come to pass.

Fortunately for active traders, it is easy to stay on top of leverage, margin, and P&L in real time. With the Daniels Trading Futures Calculator, these critical details may be derived and evaluated in even the most volatile markets.

Futures Online Calculator Tool

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

Subscribe To The Blog

Footer

Site Navigation

  • Frequently Asked Questions
  • About Us
  • Customer Reviews
  • Contact Us
  • Futures Blog
  • Open a Futures Trading Account
  • Media Resources
  • Fund Your Account
  • Legal Notices

Contact Us

StoneX Financial Inc.
Daniels Trading Division
230 South LaSalle Suite 10-500
Chicago, IL 60604
+1.312.706.7600 Local / Int'l
+1.800.800.3840 Toll-Free
+1.312.706.7605 Fax

Connect with Us

Trustpilot
Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

  • Risk Disclosure
  • Privacy Policy
  • California Residents Privacy Notice
  • Terms of Use
  • Back to top