Margin

This Issue in United States

Concept of Margin in Futures Trading

In this context of financial law, the following is a definition of Margin: The amount of money or collateral deposited by a customer with his broker, by a broker with a clearing member, or by a clearing member with a clearing organization. The margin is not partial payment on a purchase. Also called Performance Bond. (a) Initial margin is the amount of margin required by the broker when a futures position is opened; (b) Maintenance margin is an amount that must be maintained on deposit at all times. If the equity in a customer’s account drops to or below the level of maintenance margin because of adverse price movement, the broker must issue a margin call to restore the customer’s equity to the initial level. See Variation Margin. Exchanges specify levels of initial margin and maintenance margin for each futures contract, but futures commission merchants may require their customers to post margin at higher levels than those specified by the exchange. Futures margin is determined by the SPAN margining system, which takes into account all positions in a customer’s portfolio.

Margin in relation to Home Equity Lines of Credit

In this context, a definition of Margin is provided: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Margin

Concept of Margin in the context of derivatives contract, by the International Swaps and Derivatives Association (ISDA): The sum of money which must be deposited, and maintained, in order to provide protection against default by a counterparty to a trade.

Resources

See Also

• Derivatives Contract