What’s the difference between a margin on a stock and a margin on a future? Both are posting a fraction of the price to buy the stock/contract.
a margin call brings the margin account back to its initial margin required amount for a future contract, not for stock, when variation margin is just enough to reinstate the maintenance margin
Margin on a stock - u borrow the funds Margin on a future - more like a downpayment
Oh i see and the stock margin uses the security as collateral… thanks
delta9 Wrote: ------------------------------------------------------- > Margin on a stock - u borrow the funds > Margin on a future - more like a downpayment Good explination, just remember that the future contracts are already levereged. You need to borrow the funds to purchase stocks on margin because they are not already levereged otherwise.
margin on a stock is borrowing from the broker to execute a trade. (i.e you want to purchase 100 shares for 100$ on market order, the price changes to 100.1$ but you’ve only 10,000 in your broker account. They will purchase it for you and you’ll have to pay back in the next day or so) margin on future is divided in initial, maintenance and variation. this essentially is your gain/loss on your order. This is mainly required because futures contracts deal in enormous sums of money and a small change in price quickly changed the tide of a future’s investor’s position. every trade is marked to market daily and the net gains can be cashed out and losses of more than maintenance margin will require you to add the variation margin to get back to the initial margin essentially futures margins protects the dealers from potential losses as they provide the liquidity and act as counterparty if one party defaults.