Leverage and margin

Nothing is borrowed

In a leveraged share account you really do borrow: the broker lends you money, you own shares with it, and you pay interest. Futures do not work that way at all, and the vocabulary carried over anyway.

In article 1 the contract turned out to be an agreement guaranteed by the clearing house. A guarantor needs security. Margin is that security — a good-faith deposit, held while the position is open and returned when it closes. It is not a part payment, it does not buy anything, and there is no loan to pay interest on.

The formal name says it better than «margin» does: a performance bond.

Three numbers, and only one of them is yours

Figure	Set by	What it does
Initial margin	The exchange	What must be in the account to open and hold a position overnight. Rises when the market gets volatile.
Maintenance margin	The exchange	The level you must stay above. Drop below and you are called for more, or closed out.
Day-trade margin	Your broker	A much smaller figure, offered only while you are flat by the session close. A commercial decision, not an exchange rule.

Day-trade margin is commonly a small fraction of the exchange figure — often in the low thousands for a full-size index contract and roughly a tenth of that for a micro, though every broker publishes its own and changes it around holidays and major releases.

It has a clause people discover the hard way. It applies while the session is open. Hold the position past the broker's cut-off and the full overnight requirement applies — and if the account cannot cover it, many brokers simply flatten the position for you. That is not a stop-loss, it does not care where your level was, and it happens at whatever price is available.

Leverage is not a setting

There is no dial. What there is, is a multiplication you already performed when you chose the contract.

A futures contract controls an amount of value called the notional: the index level multiplied by the contract's point value. With the index at 21,500 — a round number for the arithmetic, not a forecast:

	NQ — the mini	MNQ — the micro
Point value	$20	$2
Notional controlled	21,500 × 20 = $430,000	21,500 × 2 = $43,000
Held with, intraday	a few thousand	a few hundred

Diagram 1. The top bar is what moves. The bottom bar is what the exchange is holding in case you cannot cover it. Nobody chose a leverage ratio here — it fell out of the contract specification.

The number that actually helps

«Forty to one» is a true description and a useless one, because it does not tell you what to do. Convert it into your own account instead:

One point moves my account by ____ per cent. My stop is ____ points. So this trade risks ____ per cent.

With one mini and a $10,000 account, one index point is $20 — 0.2% of the account. A forty-point stop is 8% of everything you have, in one trade, on a contract that can travel forty points in a few minutes. Nothing about that sentence required the word leverage, and it is far harder to argue with.

Run the same line with one micro: one point is $2, or 0.02%, and the same forty-point stop risks 0.8%. Same idea, same chart, same stop — a completely different trade. That is what article 4 meant by granularity.

What goes wrong, in order

Day-trade margin makes a large position affordable, so a large position gets taken.
The position is sized by what the broker allows rather than by what the account can lose.
An ordinary move against it — not a crash, an ordinary move — produces a loss that is a serious fraction of the account.
The decision to hold or fold gets made while that number is on the screen.

Note what is missing from that list: a bad forecast. Every step is about size. This is why margin sits in stage 1 rather than in the risk stage — by the time you get to the risk stage, the habit is already formed.

Margin tells you what you are allowed to do. It says nothing about what you should do. Article 8 is about the second question.