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Leverage through margin is a fundamental feature of commodity trading in futures and options markets, enabling participants to control large contract values with a relatively small initial capital outlay. In futures trading, margin is not a down payment but a performance bond deposited with the exchange clearinghouse to ensure contract fulfillment. This structure creates leverage because the trader gains exposure to the full notional value of the commodity contract while committing only a fraction of that value as initial margin. As prices fluctuate, gains and losses are settled daily through mark-to-market, with variation margin credited or debited to the trader’s account. This mechanism enhances both risk management and capital efficiency when used prudently. From a risk management perspective, margining serves multiple protective functions. First, the requirement of initial and maintenance margins reduces _____ ___ ________ _______ ___ ___ _____ _______ _______ ________.
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