Futures and Options: How Leverage, Margin and the Margin Call Actually Work

A futures contract creates an obligation. An option creates a right. That one word changes all the risk. This lesson opens up how both instruments work, with no trading advice at all. Because here you commit little money and control a very large asset. In a futures contract both sides are bound. In options, only the seller is. The exchange fixes size and maturity; the clearing house guarantees performance. Both sides post margin, and profit and loss settle every single night. The account floor is seventy percent of margin. Below it comes the margin call. Suppose ten million toe-mahns controls fifty million toe-mahns: five times leverage. A seven percent drop leaves six and a half million, and the notice is issued. The option buyer pays only premium; the worst loss is known from day one. At the Iran Mercantile Exchange, futures trade on saffron, silver and gold fund units. Entry needs a derivatives code, an operating account and a competency exam. Leverage is a multiplier, not a direction. It enlarges the loss just as much. In a futures contract your loss is not capped at the initial margin. Futures sell an obligation, options sell a right. Each places risk differently. Now you have the answer from the start: one word, obligation or right. Save this and review it later.