Initial margin

It is the cash that someone must deposit to the clearing house of the transaction, as a guarantee that he/she fulfil the obligations arising from the contract. It is a percentage applied on the value of the position and it is different depending on the underline asset, its price volatility, the stock exchange or even the broker.

For example if someone is long (or short) 1 WTI crude oil contract with value $98,000 ($98/barrel x 1000 barrels/contract) and the initial margin requirement is 20%, then he/she has to deposit $19,600 ($98,000×20%) in cash in order to open the position.

Maintenance margin

The initial margin must not be reduced under a predefined threshold which is called maintenance margin. If this happens then the trader is receiving a margin call and he/she must deposit additional money to his/her margin account in order to fulfil the initial margin requirement. In case this is not possible then the position will be liquidated. The maintenance margin is a percentage applied on the value of the position.

In the above example assume that the maintenance margin is 15% and we have a long position. This is equal to $14,700 ($98/barrel x 1000). Suppose that the price drops to $92/barrel. This is a loss of $6/barrel (total $6,000), which is being deducted from the initial margin of $19,600. So, $19,600-$6,000=$13,600 which is below the maintenance margin and consequently a margin call will take place to deposit additional funds.