Margin — The capital an exchange or broker requires to open and hold a futures position, posted as a performance bond rather than paid as a cost.
How margin works in prop trading
Margin is collateral, not a payment. The exchange sets an initial margin to open a position and a maintenance margin to keep it, and brokers may require more. It is returned when the position is closed; what you actually lose or gain is the price movement, not the margin.
On a prop account, margin is usually not the binding constraint — the contract cap and drawdown allowance bite long before it does. It still matters in two places: a firm may reject an order that exceeds available margin even when the contract cap allows it, and exchanges raise margin requirements during volatile periods, which can shrink the size you may hold with no change to the firm's rules.
Key points
- Collateral held against the position, returned when it is closed — not a fee.
- Set by the exchange, with brokers and prop firms free to require more.
- On prop accounts the contract cap and drawdown usually bind before margin does.
- Exchanges raise margin in volatile conditions, which can reduce your permitted size without warning.
Also known as
- initial margin
- performance bond
- margin requirement
Frequently asked questions
Do prop firms use exchange margin?
Most set their own requirement at or above the exchange level, and some use a day-trading margin well below the overnight requirement for intraday positions. Your practical limit is normally the contract cap rather than margin.
Is margin the same as risk?
No, and confusing them is dangerous. Margin is what you post to hold the position; risk is what the position can lose. A contract with $500 day-trading margin can lose far more than $500 if you hold it through a large move.
Put this into practice
Margin is described here as a plain-language educational definition. Firms, platforms, and account programs may apply different conditions or calculations. Verify the current official terms before using this definition to make an account decision.