Margin
Also called: margin, span margin, exposure margin, initial margin, mark to market, mtm.
How it is read
Margin is read as a risk requirement. It is not the cost of the trade, and not its size. It is typically built from two parts. The first covers the modelled loss over a defined move. A further part is added on top. The requirement is worked out again as prices and volatility change. So the amount on an open position is not fixed. It can move away from the level it started with. Margin also differs by side and by structure. Writing an option and buying one are not the same requirement. A defined-risk structure is generally treated differently from a naked leg.
What it does not tell you
Having enough margin establishes nothing about whether a position is sensible. Margin is also not a cap on loss. A position can lose more than the amount blocked. Extra funds can be called for while it is open. And a shortfall can lead to positions being closed out by the broker. That happens at whatever prices are available then. Requirements are also revised by the exchange. An individual broker can raise them further. So a figure quoted for one account at one time does not describe another. It does not describe the same account on another day.
See it in an experiment
Uncovered option gap — Observe the uncapped liability of eligible short exposures and the limits of stop execution.
Related concepts
What is margin?
Margin is money a broker holds as a safety deposit for a leveraged position. A leveraged position is larger than the money you put up. It is not a fee or the position's price. The amount can change with prices, risk rules, the product and the broker. It does not limit your loss.
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