Futures Margin, Leverage, and Isolated versus Cross Collateral
Summary
The document explains how futures margin supports leveraged positions and distinguishes initial margin from maintenance margin. Initial margin is tied mainly to position value and leverage, while maintenance margin is the threshold for keeping a position open. A numerical example shows that leverage reduces required initial collateral for a given position value, while gains and losses are measured against that collateral and can therefore produce larger return-on-equity swings.
It describes mark-price-based risk controls, and compares isolated margin, which allocates collateral to one position, with cross margin, which shares eligible funds across positions. Position size, risk tier, contract and settlement currency, fees, funding, and account transfers can affect displayed requirements. The article recommends reviewing order-panel estimates and leaves clear caveats: estimates can change, liquidation depends on platform rules and market conditions, and margin is not a guaranteed cap on losses.
Key ideas
- Initial margin is generally based on position value and leverage, while maintenance margin governs whether a position can remain open.
- Leverage lowers collateral required for a given position but increases exposure to price changes relative to that collateral.
- Mark price informs unrealized PnL and liquidation risk, though execution prices can differ.
- Isolated margin assigns collateral to a position, while cross margin shares eligible funds and can spread account-level effects.
- Risk tiers, contract terms, fees, funding, and balance changes can alter margin requirements.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.