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Futures 101 · Lesson 2 of 6

Margin, Leverage and Daily Settlement

Futures let you control a big contract with a small deposit. That is why futures are popular. It is also why many new traders get hurt.

What is margin?

Margin is a good-faith deposit you leave with your broker while a trade is open. It is not a down payment, and it is not the most you can lose. The exchange sets a minimum called initial margin. Many brokers ask for less on day trades that close the same session. That is called day-trade margin. CME explains it in Margin: Know What's Needed.

What is leverage?

Every contract controls a full value: the price times the multiplier. For example, if the Nasdaq 100 is at 20,000 points, one MNQ controls 20,000 x $2 = about $40,000 of value. Your deposit is a small slice of that. So a small price move is a big move for your account, up or down.

Your account settles every day

Futures are marked to market. Each day the exchange compares your open trade to that day's settlement price. Gains are added to your account and losses are taken out, in cash, that same day. CME walks through it in Mark-to-Market.

Example: losses settle every day$1,000Day 1$870Day 2$720Day 3$560Day 4Maintenance margin lineMargin call
Example numbers only. When the balance drops below the maintenance level, you get a margin call.

What is a margin call?

There is a second line, called maintenance margin. If losses push your balance below it, you get a margin call: add money, or the position gets closed. A broker can close it for you, at the worst possible time. Current margin levels are on the CME product margins page, and your broker may ask for more.

How to use leverage safely

  • Size every trade by your stop, not by how much margin you have. Lesson 5 shows how.
  • Keep plenty of cash above margin. A thin cushion turns a normal loss into a forced exit.
  • Never add to a losing trade to "make it back." Leverage makes that mistake bigger.
Previous: Lesson 1Points, ticks and dollar value

All Futures 101 lessons

  1. Lesson 1: Points, ticks and dollar value
  2. Lesson 2: Margin, leverage and daily settlement (you are here)
  3. Lesson 3: Order types and bracket orders
  4. Lesson 4: Sessions, holidays and the roll
  5. Lesson 5: Risk per trade with micros
  6. Lesson 6: Your first plan: chart, simulator, journal

Mahalo for reading and trade well!
Glenn & Reid | Hawaiʻi Trading Academy

Risk disclaimer: Trading futures involves substantial risk of loss and is not suitable for every investor. You can lose more than your initial deposit. Examples on this page use made-up numbers to teach the math. Past performance does not guarantee future results. Hawaiʻi Trading Academy provides education only. We are not financial advisors, and nothing on this page is a recommendation to buy or sell any financial product. CME Group is an independent exchange; HTA is not affiliated with it. Contract details can change; check CME before you trade.