Depositing margin in commodity trading

To begin trading, the investor needs to deposit a margin with his broker. Margin requirements are of two types, the initial margin and the maintenance margin. These margin requirements vary across commodities and exchanges but typically, the initial margin ranges from 5-10% of the contract value.

The maintenance margin is usually lower than the initial margin. The investor's position is marked to market daily and any profit or loss is adjusted to his margin account. The investor has the option to withdraw any extra funds from his margin account if his position generates a gain. Also, if the account falls below the maintenance margin, a margin call is generated from the broker and the investor needs to replenish his account to the initial level.

In the next chapter we will learn about various information a commodity trader must keep tab on and how to devise a trading plan.

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