Why do you only post a fraction of what the contract is worth?
To take on one crude contract — $80,000 of oil — you deposit something like $6,000. That is not a down payment and it is not a loan. Understanding what it is changes how you read every number that follows.
Margin is a performance bond
Buy a stock on margin and you borrow money and own an asset: the broker lends, you owe interest, the shares are yours. Post futures margin and you own nothing and borrow nothing. You have deposited collateral guaranteeing that you can honour tomorrow's settlement. The clearing house is not lending you $74,000. It is asking for evidence that you can pay when you lose.
That distinction explains why margin is measured against volatility, not value. The clearing house does not care what the contract is worth; it cares how far the price can plausibly move before it can close you out.
Two numbers
Initial margin — what you must post to open a position. Set by the exchange and clearing house, sized to cover a large one-to-two-day move at current volatility. Illustratively $6,000 against an $80,000 crude contract, or 7.5%.
Maintenance margin — the floor your account balance may not fall below. Slightly lower, illustratively $5,500. Fall below it and you receive a call to restore the account to initial margin, not merely back to maintenance. The call is therefore always bigger than the shortfall.
Brokers may demand more than the exchange minimum. They never demand less.
The leverage arithmetic
It falls out in one line:
$80,000 notional ÷ $6,000 margin = 13.3× leverage
Which means:
- A 1% move in crude ($0.80) = $800 per contract = 13.3% of your posted margin
- A $1.00 move = $1,000 = 16.7% of your posted margin
- A 7.5% move against you consumes the entire initial margin
Margin is not a risk measure
This is worth internalising. A margin requirement expresses the clearing house's estimate of a plausible short-term move — nothing more. It is revised when volatility changes, and exchanges raise margin in turbulent markets. That is prudent for the system and brutal for participants: requirements go up precisely when positions are already losing, mechanically forcing everyone smaller at the worst possible moment. Margin changes are a real, recurring source of forced selling in commodity markets.
The numbers laid out
One crude contract, entry $80.00, initial margin $6,000:
- Price at $76.00 → −$4,000 → balance $2,000
- Price at $74.00 → −$6,000 → balance $0 — margin fully consumed
- Price at $70.00 → −$10,000 → balance −$4,000
That last line is not a footnote or a rounding artefact. It says you owe $4,000 you never posted. It is the reason the next two lessons exist.
None of this is a suggestion to trade futures. It is a description of how the instrument works, so that you can read about it accurately.
Try it now
- A year of daily candles is below. Find the tallest one — the largest single-day range in the window — and Measure it to read the percentage.
- Multiply that percentage by one contract's notional. That is one day's profit or loss on one contract, from a session that was not a crisis and did not make the news.
- Compare it to a plausible initial margin of 5–10% of notional. What fraction of the margin did a single ordinary bad day consume? Whatever your answer, note that the exchange asks for the money the same morning.