Maintenance Margin

The maintenance margin is the minimum account equity required to maintain an open futures contract or short option position. It is typically set at 70–80% of the initial margin. If daily mark-to-market losses cause account equity to fall below maintenance margin, the broker issues a margin call, requiring the trader to deposit additional funds immediately or close positions. Maintenance margin enforces discipline and reduces counterparty risk.

Maintenance margin mechanics

Example:

• Initial margin: $5,000
• Maintenance margin: $3,500 (70%)
• Trader deposits: $5,000
• Account equity starts: $5,000
• Daily loss: −$2,000 (price moves against trader)
• Remaining equity: $3,000

The equity of $3,000 is below maintenance margin ($3,500). Margin call issued immediately. Trader must deposit $500 to restore equity to $4,000 (above maintenance), or close the position.

The margin call process

1. Exchange notifies broker that account is below maintenance.
2. Broker notifies the trader (typically after market close).
3. Trader must deposit funds or close position before next market open (or same day depending on broker rules).
4. If trader does not act, broker automatically liquidates positions (forcibly closes them) at market prices.

Forced liquidations can occur at terrible prices if the market gaps overnight or liquidity is thin.

Cushion between initial and maintenance

The gap between initial margin ($5,000) and maintenance margin ($3,500) is the cushion ($1,500). This cushion gives the trader room to absorb losses before facing a margin call.

In normal markets, this cushion is sufficient. During crises (high volatility, gap moves), the cushion can evaporate quickly.

Margin call consequences

A margin call forces the trader to:

1. Deposit cash immediately (depletes cash reserves)
2. Close positions at market prices (may lock in losses)
3. Liquidate other assets (sells stocks, bonds to raise cash)

This is why traders must understand their leverage and margin risk.

Variation across brokers and exchanges

Exchanges set minimum maintenance margin requirements. Individual brokers often require higher margins (more conservative). A trader might see:

• Exchange minimum: 70% of initial
• Broker requirement: 75% of initial

The broker’s requirement is what matters.

Portfolio-level margin

Large, institutional traders with diversified portfolios may have portfolio margin, where maintenance is calculated on the portfolio’s aggregate risk rather than per-contract. This can reduce margins significantly.

See also