Trader Resources : Margin Costs
Margin costs are set to guarantee the integrity of all trades. A margin can be seen as a security deposit on a contract. The trader must have a certain amount of money available in their account to make sure they can cover any losses they incur on the trade. There are two types of margin requirements.

The initial margin is the amount required to establish a position. For most commodities, it is 5% - 8% of the commodity value, depending on inherent price risk of the commodity. Hedgers and speculators pay different initial margin costs. Typically, the intial margin costs of a hedger are 25% less than that of a speculator.

The maintenance margin is the minimum balance in your margin account required to maintain a position. This is generally about 75% of the initial margin. Hedgers and speculators share the same maintenance margin requirements.

If a trader tries to initiate a trade, but does not have enough money in their account to cover the initial margin requirements, the broker will not allow the trade. Additionally, if the trader no longer has enough money to cover the maintenance margins for his/her existing positions, the broker will issue a margin call. In this case, the trader must either close positions to lower margin requirements, or to cover their losses. If the trader does not add enough money to their margin account to cover the margin call, the broker reserves the right to liquidate positions if the trader fails to meet a margin call.

During the course of the year, exchanges will issue new margin requirements for contracts if they feel the price risk for the commodity has changed.

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