What does "margin" refer to in the context of futures trading?

In the context of futures trading, "margin" specifically refers to the required performance bond for contracts. When a trader enters into a futures contract, they must deposit a certain amount of money, known as margin, which acts as a security deposit or performance guarantee to ensure that both parties fulfill their obligations under the contract. This amount helps mitigate the risk associated with price fluctuations in the underlying commodity by ensuring that traders have sufficient funds to cover potential losses.

The initial margin is the amount required to open a position, while maintenance margin is the minimum amount that must be maintained in the trading account to keep the position open. If the account balance falls below this level due to losses, a margin call will prompt the trader to deposit additional funds to bring it back up.

This understanding of margin as a required performance bond is critical for managing risk in futures trading and is a fundamental concept for anyone involved in commodity markets.