Initial margin is the minimum deposit required to open a leveraged trading position, serving as collateral to cover potential losses. Set by exchanges, clearinghouses, or brokers, initial margin requirements vary based on instrument volatility, market conditions, and regulatory requirements. This deposit ensures traders can meet potential obligations and protects the financial system from counterparty risk.

Initial margin calculations consider historical volatility, correlation analysis, and stress testing to determine appropriate risk coverage levels. Margin requirements can change daily based on market conditions, with higher volatility typically requiring larger deposits. Understanding margin requirements is essential for position sizing and capital allocation decisions in leveraged trading.

Real-world example: A crude oil futures contract requires $5,000 initial margin per contract, allowing traders to control 1,000 barrels ($75,000 value at $75/barrel) with relatively small capital outlay while ensuring adequate risk coverage.