To trade a commodity futures or options contract, you must deposit a margin upfront — the core being SPAN margin plus exposure margin, the same framework used in equity derivatives. On top of that base, exchanges can impose additional or special margins during volatile phases, and margins rise further as a contract approaches its delivery period.
What are SPAN and exposure margins?
SPAN margin is calculated by a risk model that asks: what is the worst loss this position could plausibly suffer over a short horizon? The more volatile the commodity, the higher the answer. Exposure margin is an additional cushion charged over and above SPAN. Together they form the initial margin your broker collects before your order is accepted. The framework is explained in detail in what are SPAN and exposure margins — it applies across commodity derivatives segments, on MCX and on NSE's commodity derivatives segment (NSE Commodities) alike, just as it does to equity F&O.
Because SPAN tracks volatility, margins differ hugely across commodities. A calm month in gold might need a margin in the mid-single-digit percentages of contract value, while natural gas — a famously jumpy contract — can demand a much larger percentage. Illustratively: if Harpreet trades a gold contract worth ₹7,50,000 at a 6% total margin, she deposits about ₹45,000. (Both figures are examples, not current rates.)
Why did my margin requirement suddenly increase?
Three usual reasons:
- Additional / special margins. When a commodity turns unusually volatile — a war headline hits crude, or gold gaps on a central-bank surprise — the exchange or the regulator can slap an extra margin on that contract, sometimes overnight. This is deliberate: higher margins cool leveraged speculation exactly when risk is highest.
- Rising volatility feeding SPAN. Even without a special levy, SPAN itself recalculates through the day and rises when price swings widen.
- The delivery period approaching. For compulsory-delivery contracts, margins are stepped up sharply in the final stretch — often reaching a large fraction of full contract value — to push out participants who have no intention of giving or taking delivery. The timeline is covered in how are commodity contracts settled.
If your account can only ever afford the minimum margin, any one of these events forces you out of the position at whatever price prevails.
What happens after I take the position?
Margins get you in; mark to market (MTM) keeps score. Every evening your futures position's gain or loss is settled in cash — profits credited, losses debited from your available balance. A losing streak eats your cushion, and if your balance falls below the required margin you face a margin call: add funds or see the position reduced. What is mark to market (MTM) walks through this daily cycle.
Falling short is not just inconvenient — exchanges levy a margin shortfall penalty on accounts that trade without the required margin, which your broker passes on.
How much extra should I keep beyond the minimum?
There is no official number, but experienced commodity traders treat the exchange margin as a floor, not a budget. A working habit: keep a buffer comfortably above the initial margin — enough to absorb a bad evening session (remember, commodity markets trade till late night) plus a possible special-margin hike. If the buffer needed feels too large, the honest conclusion is that the position is too big.
Things to keep in mind
- Margin percentages are not fixed — they move with volatility, exchange circulars and the delivery calendar. Check the actual requirement on the order screen each time.
- Volatile commodities like natural gas carry structurally higher margins; that is the risk model telling you something.
- Keep room for MTM debits — the margin is a deposit, not the most you can lose.
- Special margins often arrive after a big move has begun; a position sized to survive them is a position you can hold with a clear head.
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How are commodity contracts settled? — Margins carry the position while it is open. Settlement is how it finally ends.