Margin Call
A margin call is the broker's demand for additional collateral when accumulated losses pull a futures account below the maintenance margin threshold. The trader must restore the balance to the initial margin level, not merely to the maintenance line, usually within one business day. Failure to meet the call gives the broker the right to close out (liquidate) the position at the prevailing market price, with any residual loss still owed by the trader.
Why it matters
Daily mark-to-market silently drains the account on losing days. Variation margin is the routine fluid in the pipes. A margin call is what happens when the tank runs dry below the safety line. The asymmetric rule that requires topping up to initial margin is deliberate. Restoring only to maintenance would leave zero buffer for tomorrow's price move, almost guaranteeing another call. Brokers can liquidate without permission if the call goes unmet, which is how runaway losses get contained in centrally cleared markets.
Formulas
Worked examples
Initial margin A$10,000 and maintenance margin A$7,500 on a single contract. After three days of losses the balance is A$7,200.
Margin call triggered because A$7,200 is below A$7,500. The trader must deposit $10{,}000 - 7{,}200 =$ A$2,800 to restore the account to the initial margin level. Restoring only to A$7,500 would leave zero buffer and likely trigger another call the next day.
A long position in one CME WTI crude oil futures contract (1,000 barrels) was opened with US$6,500 initial margin and US$5,800 maintenance margin. The oil price falls US$1.20 per barrel overnight.
Mark-to-market US$1,200. New balance US$5,300, below the US$5,800 maintenance level. Margin call issued for $6{,}500 - 5{,}300 =$ US$1,200 to restore the account to initial margin. Note the required deposit equals the loss because the price moved through both the initial-maintenance buffer of US$700 and an additional US$500.
Common mistakes
- ✗A margin call means the position is closed automatically. Liquidation happens only if the call goes unmet. The trader retains the choice to top up and keep the position open, subject to the broker's deadline.
- ✗Margin calls cap losses at the initial margin. They do not. If the market gaps overnight or moves through the call faster than the trader can deposit, the account can go negative and the trader owes the broker the shortfall. The Robinhood-GameStop episode in 2021 made this risk visible to retail traders.
- ✗Restoring the maintenance level is enough. The convention restores to initial margin. Topping up to the lower maintenance line would leave the buffer at zero and almost certainly trigger another call within a day.
Revision bullets
- •Triggered when balance falls below maintenance margin
- •Must restore to initial margin level, not maintenance
- •Failure to meet broker forced liquidation
- •Usually due within one business day
- •Losses can exceed initial margin if prices gap through the call
Quick check
Initial margin is A$15,000 and maintenance margin is A$11,000. At what balance does a margin call occur?
Initial margin US$8,000, maintenance margin US$6,000, current balance US$5,500. The required deposit is:
Connected topics
In learning paths
Sources
- Hull, John C. Options, Futures, and Other Derivatives. 11th ed. Pearson, 2022. ISBN 978-0-13-693997-9.Defines the margin call mechanism and the rule that the account must be restored to initial margin level.
- Australian Securities and Investments Commission. Market Integrity Rules for ASX 24 Futures Market. ASIC, 2024.Regulatory framework governing how Australian futures brokers must call and collect client margin.
- U.S. Commodity Futures Trading Commission. Customer Margin Requirements for Security Futures. CFTC, 2023.US regulatory rules on margin calls and broker liquidation rights for futures customer accounts.
- CME Group. Understanding Margin Calls and Liquidation. CME Group Education, 2024.Practitioner explanation of margin call mechanics and the broker's rights to close positions if calls go unmet.