# Margin Requirements in Futures Contracts

In a futures contract, the margin balance is adjusted everyday based on the changes in the settlement price from the previous day. This process is called mark-to-market.

Usually, marking to market (MTM) is does on a daily basis, however exchanges may require more frequent marking to market under extreme market conditions.

In this article, we will take an example to understand margin calculations work.

Assume a long position in 10 futures contracts on XYZ stock. Each contract covers 100 stocks.

The contract price is $10, the initial margin required is$100 and the maintenance margin required is $75. For 10 contracts, the total initial margin is$1,000 and maintenance margin is $750. During the next three days, the price changes as follows: Day 1: -30 cents Day 2: +10 cent Day 3: -30 cents Let's compute the margin balance for each of the five days. Since there are 100 stocks in each futures contract, a 1 cent change in price changes the contract value by$1 or $10 for 10 contracts. The following table shows the margin balance for the three days. DayRequired DepositPrice/StockDaily ChangeGain/LossBalance | 0 | 1000 | 10 | 0 | 0 | 1000 | | 1 | 0 | 9.7 | -0.3 | -300 | 700 | | 2 | 300 | 9.8 | 0.1 | 100 | 1100 | | 3 | 0 | 9.5 | -0.3 | -300 | 800 | Let’s understand the margin calculation on each day. On Day 1 itself, the margin balance has gone below the maintenance margin of$750. It has reach $700 and the trader is required to deposit$300 to replenish the margin balance back to the original $1000. On day two, the price moved up creating a gain of$100. The margin balance at the end of day two is $1100. On Day 3 again, the price moves down by 30 cents. However, at the end of the day, the margin balance is$800, that is, above the margin balance. So, no margin call is required.