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I just a had a quick question about margin in a Futures contract.

Suppose, that I have a Futures contract that requires an initial margin of $1000 and a maintenance margin of $500. Suppose that after a series of losses, my maintenance margin falls bellow $500, to $400. Then why do I have to replenish my account to the initial margin rather than the maintenance margin?

Thanks

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From All About Futures Margin

Margin Maintenance is the amount of money where a loss on your futures position requires you to allocate more funds to bring the margin back to the initial margin level.

Consider if you simply needed to deposit to get above the maintenance margin but no more, the number of margin calls would be far more frequent. The current system of needing to bump account to initial margin avoids that.

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  • So the primary reason is to avoid more frequent margin calls?
    – Jeel Shah
    Commented Feb 18, 2013 at 3:07
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    I imagine there are numerous good reasons for the process. Weeding out those who can't afford to stay ahead of the margin requirements is another. If one doesn't deposit back to initial margin, the position is liquidated.
    – JTP - Apologise to Monica ♦
    Commented Feb 18, 2013 at 3:42

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