The amount of collateral that a trader is required to deposit with an exchange when trading futures contracts or other similar financial instruments is referred to as exchange margin. This margin ensures that the trader will be able to meet their financial obligations in the event of adverse price movements.
Exchange margin is distinct from other types of margin required by brokers in margin accounts, such as initial margin and maintenance margin. The exchange margin is determined by the exchange and represents the bare minimum of collateral required for a specific futures contract. The margin is typically calculated as a percentage of the contract's notional value and is adjusted on a regular basis by the exchange based on market conditions.
If the value of the trader's futures position falls, the exchange may issue a margin call, requiring the trader to deposit additional funds to meet the required margin level. If the trader does not meet the margin requirement, the exchange may liquidate the position to cover the losses.