Mark-to-market, variation margin, and daily settlement in futures

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The money goes ’round, but it’s not always merry.

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Margin is one of the most important—and yet often misunderstood—concepts in futures trading. In equities, margin refers to borrowing money from a broker to purchase shares. In futures, however, margin functions more like a performance bond—a good-faith deposit to ensure you can cover potential losses. What’s confusing is that you’ll encounter different types of margin, each serving a different purpose: day margin, initial margin, maintenance margin, and variation margin.

Variation margin may be an unfamiliar term, but it makes daily settlement possible. It’s the mechanism by which profits and losses are credited or debited at the end of the day, keeping the futures market stable and orderly.

Many traders make the common mistake of using “variation margin” interchangeably with “maintenance margin.” They’re related, but they’re not the same thing.

Futures trading involves several kinds of margin, each serving a distinct purpose in managing risk and position size.

Initial margin is the amount of money you need in your account to hold a particular futures contract “overnight.” Initial and maintenance margins are set by the exchange and its associated clearinghouse (e.g., CME Group/CME Clearing). Your broker may impose higher house requirements.

For example, as of late 2025, if you wanted to trade E-mini S&P 500 futures (ES) and hold that position beyond the day’s market close, each contract you trade would have a margin requirement of about $23,000 (or more, depending on the arrangement you have with your broker). Although that may sound like a lot of money, remember that the contract size is $50 times the index, which in late 2025 was about 6700. So that $23,000 margin would control $335,000 of notional value. 

Maintenance margin is the balance you need to continue holding that position beyond the first day without making any adjustments. Maintenance margin matters because it’s the threshold that keeps losses in check. Dip below it, and you’ll need to top up your account to the initial margin level to keep the position open.

For example, an initial margin of $23,000 might have a maintenance margin level of $21,000. If the value of this position falls below $21,000, you’ll need to deposit more money into the account to bring it up to $23,000.

Day margin (aka “day trading margin”) is the balance you need to hold to trade a contract that will be closed within the same day. Day margins are significantly lower than initial margin, allowing day traders to trade with greater frequency or to hold more positions.

For example, the day margin for one ES contract can be as low as $500 per contract. Each broker has different standards regarding day margin amounts and end-of-day policies. Many brokers will auto-liquidate day positions before the close if you don’t meet the overnight initial margin.

These three types of margin—initial, maintenance, and day—are all requirements for your account. Together, they form the framework that keeps futures trading disciplined. They ensure traders have enough capital at risk to cover potential losses while keeping the system balanced from day to day.

Initial, maintenance, and day margin are all about balances within your account. Variation margin (VM) is different. It’s the end-of-day cash flow that’s debited from losing accounts and credited to winning accounts, and it involves three steps:

Variation margin might look like an accounting exercise, but it’s one of the key safeguards that keeps futures markets functioning smoothly. By settling gains and losses every day, clearinghouses can prevent losses from building up into unpayable amounts. This prevents small defaults from compounding into broader market stress.

For clearinghouses, variation margin is a safeguard that ensures all counterparties meet their obligations—meaning that losing traders pay up and winning traders get paid. Those who have made profits can also redeploy their capital into new trades, which keeps liquidity circulating in the markets. By resetting the books each day, variation margin helps ensure that every trader, and the market itself, starts tomorrow on solid footing.

Suppose you decide to get long (i.e., “buy”) one CME NYMEX light sweet crude oil futures contract (CL) at the prevailing price of $60 per barrel (and a contract size of 1,000 barrels). You plan to hold this position for a few weeks. Suppose your broker’s margin requirements are:

You have exactly $10,000 in your trading account, which matches the initial margin. Let’s trace a hypothetical scenario.

Margin calls require you to restore your account to the initial margin level, not just back to maintenance. If you don’t meet a margin call promptly, your broker may liquidate your position.

Profits that lift your balance above initial margin can usually be withdrawn, subject to broker policies. If allowed, you could remove $2,000 from your account to keep the account value at your initial margin level of $10,000.

Variation margin is what makes the give-and-take of funds possible in daily, mark-to-market settlement.

Variation margin differs from initial, maintenance, and day margin. Variation margin isn’t a balance, but the end-of-day cash transfer produced by mark-to-market settlement. Clearinghouses use the exchange’s settlement prices to move funds from losing accounts to winning accounts, keeping obligations current. This daily reset limits default risk and keeps liquidity circulating, so futures trade smoothly and transparently.