Initial Margin and Maintenance Margin

CFA Level I Derivatives
#1

In contrast to equity account margins, futures account margins only need to bring the margin percentage back upto its maintenance margin and not initial margin.

Can someone explain this with an example, what exactly is the difference between the two.

Thanks.

#2

Think of futures account margins like a security deposit on an apartment you are renting. If there are any damages to the apartment you have to pay for them and this normally comes out of your security deposit. Well its the same sort of thing for futures - if there is a drop in the value of the underlying asset of the future then that comes out of your margin account.

The margin account will be reduced by the appropriate amount at the end of each day, but once the $ value left in the margin account gets below the maintenance margin value there will then be a margin call and you will have to top it up.

#3

Good explanation.

But imho, futures and equity margins do not differ in the aspect of initial margin restatement. Both investments have to be filled up to inital margin after receiving a margin call.

(Vol 6, p. 49: “…trader must depost sufficient funds to bring the balance back up to the intial margin requirement”)

Please correct me if I am wrong.

#4

You have this exactly backwards:

  1. For equities, when you receive a margin call you need to bring the margin account only up to the maintenance margin.
  2. For futures, when you receive a margin call you need to bring the margin account up to the _ initial _ margin.
#5

I agree with you. Previous posts were making me confused.

  1. Equities - Maintenance Margin

  2. Futures - Initial Margin.