InvestorQ : Do commodities futures also attract margins and how is margining done in this case?
sara Kunju made post

Do commodities futures also attract margins and how is margining done in this case?

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Rutuja Nigam answered.
2 years ago
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Of course, wherever there is price risk, there will be margining. That principle of risk management remains the same everywhere. Like in case of equity futures, the commodity futures also trade in terms of lot sizes. The crude oil futures, for example, trade in two lot sizes of 100 barrels and 10 barrels (oil mini). The margining will depend on whether it is intended to be an overnight trade or an intraday trade. While the margin for overnight positions is around 8-10% of the notional value of the contract, the margin for intraday positions will be just 4-5%.

Like in the case of equity futures, there is an initial margin that has to be paid when you initiate the position. Then there are mark-to-market (MTM) margins that you need to pay if the price movement is against you. From time to time you also need to pay any special margins that may be applicable. In addition, once you commit to take delivery of physical commodity in spot, then the much higher spot margins also kick in.

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