Trading deposits
(margins) are required upon initiation of a futures trade. Further
deposits may be required daily to reflect the changes in the price of the
contracts, when the market moves against a trader's position. If additional
funds are required to restore the original margin (ranging from 5%-10% of the
contract's nominal value) then variation
margins must be paid in unless adequate security, for example treasury
bills, had already been deposited when the account was established. Conversely,
if the futures price move is favourable to the trader, the gains transferred
into the account above the margin requirement level become immediately available
to the trader.
Clearing house members must maintain specific
margins depending upon their net open position with the clearing house. Margins
are also needed for members of the trading public who lodge their contracts with
members of the exchange. Original margins are
normally set at approximately 10% of the market value of a contract and variation margins must be paid in full upon
demand. Margin money collected by the exchange member from the public must be
deposited in segregated customers' accounts.
Note that the original margin requirements in this category are minimum figures
and that exchange members may require additional security from their clients if
they feel the minimum margin is not enough.
Original and variation margins are adjusted from
time to time for the following reasons: to reflect increased or decreased market
levels; to add security to volatile positions, particularly in months carrying
no limit; and to discourage excessive concentration of trading positions in any
one month. Investors should note that margin requirements can be changed without
prior notice.