How much money is needed to trade futures?

E*TRADE Futures

07/18/19

So, you’ve opened your futures account. That’s great! But you still may not be too sure how much capital you will need to do a particular futures trade, or how the money moves within the account when you buy or sell a contract. Let’s walk through how money works in futures accounts, as well as some of the features E*TRADE provides to make things easier for you.

How is money handled in futures accounts?

1. Understand initial margin

Initial margin, which is set by the exchange, is the amount of cash you need to have in your futures account to open a long or short position for one futures contract. It’s important to note that it’s the same amount whether you plan to buy or sell one contract.

You’re probably already familiar with the use of margin in the equities markets, where you borrow money to purchase additional securities. However, in the futures markets, you don’t actually borrow funds to trade or carry the position.

Initial margin example: Stock vs. futures trade

Futures let you control a large contract value with a relatively small amount of capital

Stock trade

Shares purchased: $140,000

$70,000
Borrow on margin, plus interest
$70,000
Cash and marginable securities

Futures trade

Notional value: $140,000

$133,000
Leverage
$7,000
Initial margin

2. Understand mark to market

The equity in each futures account is “marked to market” daily. This simply means that at the end of each trading day, all futures accounts are settled, and money is actually transferred between the accounts of all market participants based on their gains and losses during the trading session.

So, if you have a profitable futures position on a given day, the amount of your profits will show up as cash in your futures account. On the other hand, if you have a losing futures position on a given day, the amount of your losses will come out of your futures account.

It doesn’t matter if you close the position or not. At the end of every trading day, all futures profits and losses are settled accordingly before the next trading day.

It doesn’t matter if you close the position or not. At the end of every trading day, all futures profits and losses are settled accordingly before the next trading day.

3. Understand maintenance margin

After you’ve initiated a futures position, if the equity in your account falls below the maintenance margin level you’ll be required to add additional funds to your account to bring your equity back up above the initial margin requirement.

With some futures trades, it’s possible to lose more money than you actually have in the account.

Can I get help managing the money?

To simplify the transfer of funds, your futures account may be directly linked to your regular brokerage account. This gives you access to automatically have the correct amount of initial margin moved into your futures account when you're placing a trade. By default excess funds are automatically moved out of your futures account and back into your regular brokerage account at the end of each trading day. You always have the option to do this yourself, but we try to make it easy.

How can E*TRADE help?

Enable your existing account for futures trading

Apply now

Learn more

Open a new account for futures trading

Open an account

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What to read next...

In this video, we will take a look at some reasons why many investors trade futures and why you may want to consider incorporating them into your trading strategy.

As we all know, financial markets can be volatile. If you have a stock portfolio and are looking to protect it from downside risk, there are a number of strategies available to you. But here’s one you may not have considered: Hedging your risk with equity index futures.

E-mini and Micro E-mini futures, may help supplement your trading in benchmark indexes, read on to learn more.

Looking to expand your financial knowledge?