Margin is a deposit
Lesson 4 of 16 in the course “Futures from Zero”. Free, with animations and a quiz.
A scooter deposit
When you rent a scooter, you don’t pay its full price. You leave a deposit. Futures work the same: to open a $1,000 trade you don’t need $1,000. You need a deposit, called margin. The exchange holds the margin while the trade is open. While things go fine, the deposit just sits there. If the trade goes into the red, the loss comes out of it.
Two different numbers
Remember two numbers. Margin is how much of your money is in the trade. Position size is how much you’re really trading. Nika put in $100 and picked ×10 leverage. Her position is $1,000. Profit, loss and fees are counted on $1,000, not $100. Beginners often look only at margin and think they’re risking a hundred. In fact they’re moving a thousand.
How the deposit melts
Nika has a $1,000 position and $100 margin. Every 1% the price moves against her takes $10 from the deposit. Price goes 5% against her: half the margin is left. Almost 10%: the deposit is almost gone. The exchange has a minimum balance, called maintenance margin. When the deposit drops to it, the exchange closes the trade itself. That’s liquidation, and it gets its own lesson.
Check yourself
- Nika put up $50 margin with ×20 leverage. What’s her position size?
Correct answer: $1,000. Position size = margin × leverage = $50 × 20 = $1,000. Profit and loss are counted on it. - Position $1,000, margin $100. Price moves 3% against. How much is left in the deposit?
Correct answer: $70. 3% of $1,000 is $30. Deposit $100 − $30 = $70. Count from the position, not the margin.