Profitable eventually, liquidated first

The setup

Hypothetical educational case, not a derivatives recommendation. The contracts, margin levels, prices, and account terms below are invented and do not describe a current exchange product. Theo has $15,000 of dedicated trading capital and buys three fictional index futures at 4,000. Each contract has a $5 multiplier per index point. He focuses on the $9,000 initial margin requirement and treats the remaining $6,000 as a comfortable buffer.

Exposure is larger than the deposit

Each contract represents 4,000 × $5 = $20,000 of notional exposure. Three contracts therefore represent $60,000, four times Theo's $15,000 account equity. The initial margin assumption is $3,000 per contract, with maintenance margin of $2,500. Opening three contracts reserves $9,000 of collateral, but the economic exposure is still $60,000. Margin is a performance deposit, not a purchase price or a maximum loss.

For a linear long futures position, each one-point move changes equity by three × $5 = $15. A 100-point decline therefore costs $1,500. CME's educational materials distinguish initial and maintenance margin and explain that margin requirements can change as risk changes. The precise levels and broker procedures in this story are hypothetical; a real trader must verify the contract multiplier, settlement process, house requirements, and liquidation policy.

First comes the market loss

The index falls from 4,000 to 3,650, a 350-point move. Theo loses 350 × $15 = $5,250, reducing account equity to $9,750 before fees. Under the original maintenance assumption, three contracts require $7,500, so equity remains above that level. Theo feels reassured because he has not yet crossed the maintenance threshold. But his free capacity is smaller and his position remains exposed to another adverse move.

The loss is not merely a chart annotation. Futures are marked to market, and settlement or variation-margin cash flows can create immediate funding demands under the relevant arrangements. A broker's intraday risk checks may also matter. A planned transfer from another account may not arrive in time. The economic question is whether usable collateral is present when required, not whether Theo owns enough unrelated assets somewhere else.

Then the requirement increases

Assume volatility prompts an invented increase to $4,000 maintenance and $4,500 initial margin per contract. Maintenance for three contracts is now $12,000, exceeding Theo's $9,750 equity by $2,250. If the fictional broker requires restoration to the new initial level, the target becomes $13,500 and the amount needed is $3,750. Stating only that there is a “margin call” would hide which threshold determines the funding need.

Suppose Theo cannot add funds and closes one contract at 3,640. That extra ten-point move applies to all three contracts before the close, costing another $150. A $20 total closing charge leaves $9,580 equity. Two remaining contracts require $9,000 at the new initial level, leaving only $580 above that benchmark. Reducing the position resolves this particular deficit but leaves a narrow buffer; it does not undo the losses already incurred.

A second decline tests the remaining buffer

The index then falls from 3,640 to 3,580. Two contracts lose 60 × $10 = $600, reducing equity to $8,980 before any further charges. That is below the $9,000 initial benchmark but above the $8,000 maintenance level. Whether another demand arises depends on the broker's actual rules; this case deliberately distinguishes these thresholds instead of declaring liquidation at every dip below initial margin.

If the market instead gaps to 3,400 before Theo can act, the remaining position loses 240 × $10 = $2,400 from 3,640, leaving $7,180 before additional exit costs. That falls below the assumed $8,000 maintenance requirement. An eventual rally to 4,100 would not help an account that was forced to close at lower prices. A terminal price forecast cannot substitute for a cash-flow path analysis.

Compare smaller size and funding assumptions

Starting with one contract would create $20,000 notional exposure. The first 350-point decline would cost $1,750, leaving $13,250 before fees. The new $4,500 initial requirement would leave $8,750 above that level. This does not establish a suitable position size for anyone; it simply demonstrates how a smaller contract count changes both market loss and collateral demand under identical inputs. The opportunity to profit from a favorable move would shrink too.

Theo also distinguishes ordinary exchange-traded futures from perpetual crypto contracts. The latter may involve periodic funding transfers, different collateral haircuts, venue-specific liquidation engines, and custody risks. This case does not graft a perpetual funding formula onto an exchange-traded future. Whatever the instrument, the pre-trade worksheet should model adverse price moves, higher collateral requirements, fees, and the timing of available cash together. Borrowing more to meet a call would add another funding obligation, not remove the underlying risk.

Solve for funded capacity, not just opening margin

Work backward from the same $15,000 account. In the stated 350-point decline, each contract loses $1,750 and must then support $4,500 of new initial margin. Both demands must fit the same capital. This joint test permits two whole contracts under these assumptions, not the five suggested by dividing capital by the original $3,000 opening requirement.

n × (350 × 5 + 4 500) ≤ 15 000; n ≤ 2.4 → 2

With two contracts, the modeled loss is $3,500, leaving $11,500 equity against $9,000 of new initial margin: a $2,500 buffer before fees. Do not book the $9,000 deposit as a second trading loss; collateral restricts usable funds but is not itself an expense. Another adverse move, a higher requirement or an earlier payment deadline can still invalidate this conditional funding plan.

Where the reasoning goes wrong