What happens if a futures exchange increases margin requirements while I have open positions?

What happens if a futures exchange increases margin requirements while I have open positions?

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wanageeska · External communityPost link
External question — Personal Finance Stack Exchange Author: wanageeska Original post: https://money.stackexchange.com/questions/145117 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Specifically, what happens if my current position is already close to (or at) the maintenance margin level and the exchange then increases margin requirements? For example, First Day (end-of-day): Initial Margin = 1000 Maintenance Margin = 800 Position = 10 contracts Account Balance = 8001 Maintenance margin requirement = 10 * 800 = 8000 Therefore, margin requirements satisfied. Overnight, due to recent volatility in the market, the exchange decides to increase margin requirements to 1200/1000. Next Day (open): New Initial Margin = 1200 New Maintenance Margin = 1000 Position = 10 contracts Account Balance = 8001 Maintenance margin required = 10 * 1000 = 10000 Therefore, margin requirements not satisfied. What happens on the open of this next day? Will the broker issue a margin call? Will they liquidate a part of the position to bring the account into alignment with the new requirements? How do professionals handle this situation? Thank you for any and all guidance you can give!
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Bob Baerker · External communityPost link
External answer — Personal Finance Stack Exchange Author: Bob Baerker Original post: https://money.stackexchange.com/a/145120 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. In a perfect world, a broker would notify you that the margin requirement and maintenance requirement are going to be raised, giving you time to increase your margin via adding additional cash or reducing position size. But it's not a perfect world and after a margin increase, many brokers would immediately liquidate positions to satisfy a margin deficiency, especially with futures which tend to be more volatile with higher risk.
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