Futures represent an obligation either to buy or to sell the underlying asset at a specified date in the future. A margin is an amount that is calculated by ASX Clear, a wholly owned subsidiary of the ASX, as necessary to ensure that you can meet that obligation.
When you trade a futures contract, you do not pay, or receive, the full value of the contract at the time of the trade. Instead, both buyers and sellers of ASX futures contracts pay an initial margin and are also liable for daily variation margin calls. In times of high volatility, ASX Clear may also call intra-day margins.
How margins are calculated
ASX Clear calculates margins using the CME SPAN margining calculation engine.
The total margin is made up of two components:
- the initial margin is paid by both the buyer and the seller of the futures contract. It covers the maximum probable one-day move in the price of the futures contract, as assessed by ASX Clear. ASX Clear sets the initial margin for futures contracts according to the volatility of the underlying index. Please refer to Futures initial margins for details.
- The variation margin is an amount that is paid by a trader to cover an unfavourable move in their futures position. Each day your futures position is revalued, or settled to market. If the position has moved against you since the previous day's close of trade, you will be required to pay the difference. If the position has moved in your favour, you will receive that amount.
How margins are met
Initial margins may be met with cash or collateral. Eligible collateral includes certain shares and other ASX traded securities, bank guarantees and Austraclear securities. For more details, refer to Eligible collateral.
Variation margin obligations must be settled in cash.
Before you can place an order to buy or sell futures, your broker will generally require you to deposit cash or collateral to cover potential margin obligations.