LEVERAGE & MARGIN IN FUTURES
Plain English
Futures require only a small deposit (margin) to control a large contract. This is leverage. A $5,000 deposit might control $250,000 worth of contracts. If the contract moves 1%, you make or lose $2,500 — a 50% move on your $5,000. Leverage is a double-edged sword.
Going deeper
Initial Margin is the deposit required to open a futures position (set by exchanges). Maintenance Margin is the minimum equity required to keep the position open (typically 75-80% of initial margin). If your account falls below maintenance margin, a Margin Call requires you to deposit more funds immediately or the broker liquidates your position. Margin requirements vary by contract and volatility conditions — exchanges can raise them during volatile periods. Leverage amplifies both profits and losses. A 1% move in the underlying can produce 10-20% gains or losses on your deposited margin.
Examples
Leverage Math
E-mini S&P 500 (ES): contract value at 5,000 index points = $250,000 (each point = $50). Initial margin: $12,000. If ES moves from 5,000 to 5,050 (+1%), your profit = 50 points × $50 = $2,500 — a 20.8% return on your $12,000 margin.
Margin Call Scenario
You deposit $10,000 and buy 1 ES contract (initial margin $12,000 — your broker requires $10,000). ES drops 2%. Loss = 100 points × $50 = $5,000. Account drops to $5,000, below maintenance margin. You receive a margin call — deposit $5,000+ by end of day or your position is liquidated.