Chapter 10. Coping with Margin Calls
Thanks to movies and other media outlets, many beginning traders have become overly frightened by the idea of a margin call. Truth be told, if you trade responsibly you shouldn’t receive many, but it can and will eventually happen.
What Is Margin?
Margin is simply a specified amount of funds stipulated by the exchange and required to be held in a brokerage account to hold positions in a futures market. In its simplest form, it is a good-faith deposit or financial collateral used to cover credit risk. By demanding minimum margin required to trade in any given contract, the exchange is mitigating the possibility of traders defaulting on their trading or losing more money than they have on deposit and not meeting ...
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