What Is the Primary Purpose of Using Margin in Futures Trading?
Margin in futures trading is a good-faith deposit required by the exchange to ensure that both parties can fulfill their contractual obligations. It is not a down payment for the asset.
Its primary purpose is to cover potential daily losses due to adverse price movements. This system, known as "marking to market," adjusts the margin account daily.
It ensures that counterparty risk is minimized and that the leveraged nature of futures contracts is managed responsibly.
