How do futures margin accounts and daily settlement (mark-to-market) actually work?

Futures margin mechanics are one of the most tested topics in CFA Level I derivatives. The system exists to eliminate counterparty credit risk through daily cash settlement.

Key Terms

• Initial Margin: The deposit required to open a futures position (set by the exchange)
• Maintenance Margin: The minimum balance you must maintain (typically 70-80% of initial)
• Margin Call: Triggered when your account falls below the maintenance margin
• Variation Margin: The amount you must deposit to restore the account to the initial margin level

Worked Example — Clearwater Trading

Clearwater goes long 5 contracts of wheat futures at $5.20/bushel. Each contract is 5,000 bushels.

• Contract value: 5 x 5,000 x $5.20 = $130,000
• Initial margin: $6,500 per contract = $32,500 total
• Maintenance margin: $5,000 per contract = $25,000 total

Day-by-Day:

Key points:

1. On Day 3, the balance drops below maintenance ($25,000). Clearwater must deposit enough to return to the initial margin ($32,500), not just back to maintenance.
2. Gains and losses are settled in cash every day — this is what differentiates futures from forwards.
3. If Clearwater fails to meet the margin call, the exchange closes the position.

Exam tip: Margin call questions almost always involve tracking a multi-day position. Remember: you restore to initial margin, not maintenance margin.

For more derivatives practice, explore our CFA Level I question bank.