How do futures contracts work with the margins?

Futures where speculators put up a initial margin are essentially leveraged positions, aren't they, where the losses are protected with maintenance margins? Do futures exchanges put up the rest of the money with interest payable? Is that how it works?|||John always says such dumb stuff in such a pompous manner.





No, John, your broker doesn't put up margin for you. Imagine paying $8 a round turn and having your broker put up 95% of the notional value of an S%26amp;P contract. That would be one cheap loan.





The key is not to think about the notional value of the contract at all. Futures contracts are just risk units and your margin deposit covers the short-term risk of the contract. For some contracts it's not even clear what the notional size is, e.g., is a Eurodollar contract a $1M notional contract or just the interest on $1M for three months or something in between? If you take delivery under a futures contract you get invoiced for the underlier and your margin account is just to settle price differences.|||The exchanges put up nothing. It's the brokers who, with your holdings in your account being held to secure the margin that are putting up the money but it's at no risk to them since they are holding your equity, of course should the value of your equity drop due to market prices then they will issue a margin call for more equity to be placed in the margin.