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Margin

Margin in options trading refers to the amount of money that an investor must deposit and maintain in their account to cover potential losses from their investments. It serves as a form of collateral to ensure financial obligations are met if an investment does not perform as expected. Investors should be aware that the margin requirements for options trading are typically higher than for other types of investments due to the higher level of risk involved.

The actual margin required varies depending on the type of options contract, underlying asset, and other factors. For example, the margin requirement for writing uncovered call options is usually higher than for purchasing call options because the potential losses are unlimited. 

If an investor’s account value falls below the margin requirement, a margin call may be issued by the brokerage firm, requiring the investor to deposit additional funds into their account. Failing to meet a margin call can result in forced liquidation of the investor’s positions at unfavourable prices. Therefore, understanding margin requirements is vital for managing risk in options trading.

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