What Are the Differences between Margin and Futures Trading? | Binance Support (2024)

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What Are the Differences between Margin and Futures Trading? | Binance Support? ›

Margin trading in crypto usually has a leverage that ranges between 5 and 20%, while it's common to exceed 100% in futures. Crypto margin accounts allow traders to leverage the spot market through a sort of loan on which interest must be paid, while futures only require a good faith deposit as collateral.

Margin is essentially a loan on whatever you want to buy while futures is essentially a contract set for a future date and price that can be speculated upon. Futures contracts are typically fixed quantity items while margin trading quantities aren't fixed and depend on the funds you actually put in.

If you prefer to trade futures without leverage, you can choose not to utilize margin or borrow money from your broker. By trading futures contracts using only the capital in your trading account, you effectively eliminate leverage from the equation.

A margin call will force you to boost your account equity either by adding additional cash and securities, or by selling existing holdings. Because margin calls often occur during periods of extreme volatility, you may be forced to sell securities at depressed prices.

Futures trading is not for everyone, and as with stocks, margin can lead to losses as well as potential gains. Because margin requirements for futures contracts involve leverage, profits and losses can be magnified, so it's possible to lose more than the initial investment to open a futures position.

Introduction. The buyer or seller of a futures contract is required to deposit part of the total value of the specified commodity future that is bought or sold – this is known as margin money.

This is different from a regular cash account, in which you trade using the money in the account. With a margin account, you deposit cash, which serves as the collateral for a loan to purchase securities. You can use this to borrow up to 50% of the purchase price of an investment.

Some small futures brokers offer accounts with a minimum deposit of $500 or less, but some of the better-known brokers that offer futures will require minimum deposits of as much as $5,000 to $10,000.

Minimum Account Size

A pattern day trader who executes four or more round turns in a single security within a week is required to maintain a minimum equity of $25,000 in their brokerage account. But a futures trader is not required to meet this minimum account size.

For example, a December 2022 corn futures contract traded on the CME Group represents 5,000 bushels of the grain (trading in dollars per bushel) to be delivered by a certain date in December 2022. Crude oil futures represent 1,000 barrels of oil and are quoted in dollars and cents per barrel.

What is an example of a futures margin? ›

Futures and initial margin

For example, if a crude oil futures contract is quoted at $100,000, a futures account holder can enter a long position by posting only $5,000 initial margin, or 5% of the contract value. In other words, this initial margin requirement would give the account holder a 20x leverage factor.

Intraday (MIS) Margin:

For Intraday index futures the initial margin is set at 40% of the normal initial margin while in case of intraday stock futures, the initial margin is set at 50% of the normal initial margin.

If an authorised broker sets 20% as the margin requirement, you will pay 20% of Rs 50,000, and the balance amount will be lent to you by the broker. 20% of Rs 50,000 is Rs 10,000, and the broker will lend you the remaining Rs 40,000 and charge interest on the margin amount.

Margin borrowing comes with all the hazards that accompany any type of debt — including interest payments and reduced flexibility for future income. The primary dangers of trading on margin are leverage risk and margin call risk.

Margin trading offers greater profit potential than traditional trading but also greater risks. Purchasing stocks on margin amplifies the effects of losses. Additionally, the broker may issue a margin call, which requires you to liquidate your position in a stock or front more capital to keep your investment.

Futures margin generally represents a smaller percentage of the notional value of the contract, typically 3-12% per futures contract as opposed to up to 50% of the face value of securities purchased on margin.