Margin requirement

Rulebooks and firms state the requirement as a percent of the full contract value: the proportion that has to be posted as collateral and held for as long as the position stays open. Losses are calculated on that full contract value rather than on the collateral, so a loss can exhaust the margin posted and is not limited to the amount deposited; a gain is calculated on the same full value and on the same basis. Supervisors use the percent form because it reads as a constraint on the size of a position rather than as a feature of it.

The number is set by the counterparty for each instrument, and in regulated retail markets it sits above a floor imposed by the regulator, which differs by asset class. Requirements are higher where the underlying moves more, which is why an equity index contract and a share CFD on a single company are not treated alike. Firms also apply tiers, so a larger position attracts a higher percentage on the part above each threshold, and requirements are commonly raised ahead of a scheduled event, an earnings date or a weekend.

The point most often missed is that the requirement applies for the life of the position, not just at the moment it opens. What is checked at that moment is sometimes called initial margin, and a maintenance requirement, the level that has to keep being covered afterwards, can be a different and lower percentage. A change in the requirement while a position is open changes the collateral held against it without anything having happened in the market, which moves the account's margin level on its own.