UNDERSTANDING MARGIN and LEVERAGE in FUTURES trading

Margin and leverage are two fundamental concepts in futures trading that allow traders to control large positions with a relatively small amount of capital. While these tools can amplify profits, they also come with significant risks. Understanding how margin and leverage work together can help traders make informed decisions and manage their risk effectively. Here, we break down the key aspects of margin and leverage and share strategies for using them to your advantage.

In the world of futures trading, margin serves as a good-faith deposit that traders must provide to open and maintain a position. Unlike in stock trading, where margin involves borrowing funds, futures margin does not incur interest charges. Instead, it acts as collateral to ensure the trader’s obligations are met.