What Is “Initial Margin” in Futures Trading?
Initial margin is the amount of money that a trader must deposit into their margin account before they can open a new futures position. It is essentially a performance bond to ensure the trader has the financial capacity to cover potential adverse price movements.
This amount is set by the exchange and the clearing house and is typically higher than the maintenance margin.
Glossar
Initial Margin
Collateral ⎊ Initial margin represents the equity a trader must deposit with a broker or exchange as a good faith commitment to cover potential losses arising from derivative positions, notably within cryptocurrency markets.
Performance Bond
Bond ⎊ A performance bond, within the context of cryptocurrency derivatives and options trading, represents a specialized financial instrument designed to mitigate counterparty risk associated with leveraged positions.
Financial Capacity
Capital ⎊ Financial capacity within cryptocurrency, options, and derivatives contexts represents the quantifiable resources available to a participant to manage associated risks and execute trading strategies.
Collateral Valuation
Framework ⎊ Within cryptocurrency derivatives and options trading, collateral valuation establishes a foundational risk management layer, particularly crucial given the volatile nature of digital assets and complex financial instruments.
Clearing House
Role ⎊ The Clearing House acts as a central counterparty (CCP) in traditional and centralized crypto derivatives markets, interposing itself between buyers and sellers to guarantee the performance of the contract.
Margin Account
Leverage ⎊ A margin account in cryptocurrency, options, and derivatives trading represents an equity-backed loan from a broker, enabling traders to control a larger position than their available capital would otherwise permit.