Learn what margin requirement means, why it protects brokers and exchanges, and how it relates to leverage, futures, and margin calls.
A margin requirement is the amount of cash or eligible collateral a trader must post to open or maintain a leveraged position.
It is not the full purchase price of the asset. It is a performance buffer designed to protect the broker, exchange, or clearing system if the market moves against the trader.
Margin exists because leverage magnifies both gains and losses.
If traders could control large positions with almost no posted capital, default risk would rise quickly. Margin requirements reduce that risk by forcing traders to commit collateral up front.
This is especially important in:
Margin requirement is often split into two layers:
If losses reduce the account below maintenance margin, the trader may receive a margin call.
Suppose a trader wants to hold a futures position with a notional exposure of $100,000.
If the exchange requires $10,000 of initial margin:
$100,000 of exposure$10,000 of collateralThat is leverage.
If the position loses money, the margin account shrinks. If it falls too far, the trader must post more funds or reduce the position.
This is a common confusion.
In many leveraged markets, margin is not a partial purchase payment. It is collateral against potential loss.
That is why margin requirements are closely tied to:
Brokers and exchanges may raise margin requirements when markets become more volatile.
That does two things:
So changing margin requirement is one practical way the financial system reacts to increased risk.