Exchanges require its market participants to post and maintain a certain minimum amount of funds in their accounts for each open position held. These funds are known as "margin" and represent a good faith deposit that serve to provide protection against losses in the market. Margin requirements are subject to change at any time.

The margin call is one of the main reasons why people lose trading commodities. For example, you may have too many open positions. You may not have enough cash in your account. You may be in too many markets and most of them move against you.

To avoid them, you should maintain a certain amount of margin excess in your account according to your level of risk tolerance. It could be as little as 10% or as high of 50%. Ideally you should follow your account on a daily basis. Once your account goes into a margin deficit and not a margin call, that is the time to make an adjustment before you get the margin call. Once you get the margin call, then you have to bring up your account up to initial margin which is usually 20% more than margin maintenance.

Now let's suppose you get a margin call.

There are only 4 ways of getting out of margin calls that I am aware of. The first is adding money which most people hate. In addition, it usually means getting the dollars to the clearing firm as soon as possible via overnight courier or going to the bank to do a wire transfer. Ouch, that hurts.

One example of where you might want to meet a margin call is if you are short out of the money options. Let's say you are short Dec. 111 bond calls where the option price went from $300 (your selling price) to up to $1200 and that is why you got the margin call. With the option expiration date still 2 1/2 months away and Dec. futures are trading at 110 and your strike price is 1 point out of the money and you are a bond bear and looking for the market to go back down and the short option that you sold to expire worthless. If you can afford to give yourself a short term 2 1/2 month loan, meet the margin call and take your dollars back from you account at the expiration date.

The second way to get out of a margin call is to close positions. If you do that, that means you got a loser and are joining the masses of people that lose. Only do this if you want to cut losses and are throwing in the towel on the trade and you cannot afford to or desire not to support the trade.

Actually, there is nothing wrong with cutting loses if you do not know how to adjust losing positions using your positions' delta or the CME's SPAN software program that will be covered in #4.

The third way to get out of margin calls is to pray to the market Gods and hope that the market goes back in your direction and favor. Let's suppose your position has a negative delta of -1 in the bond market and bonds go down 1 point. That should work.

In the reality of trading you usually cannot count on market movement to bail you out as you are most likely going against the trend and that is why you got the margin call in the first place.

Market movement in your favor does work, but you should not count on it.

The fourth and final way to get out of margin calls is making adjustments to your open positions. Every FCM that I was ever with in my 25 years of trading has given me a minimum of 3 days and a maximum of 5 days to meet a call or to get out of it. The vast majority was 5 days with the first 4 days you are allowed to make adjustments to your open positions. Even on the 5th day you can make an adjustment legally as long as you are reducing risk. For example, let's suppose you are short a 2 point credit risk in the bond market which is a $2000 risk. You can adjust it into a 1 point spread thereby making it a 1 point risk, thus reducing your risk by $1000. That's O.K. and legal.

Using the net delta of your open positions is one way to adjust your positions. To get maximum margin credit is to go neutral delta. For example, let's suppose your net delta in is a position 1. If you sell 2 calls that are a little out of the money, that should make your position delta neutral in addition to taking in the cash from the sale of the options.

In my opinion, the best way to make adjustments to your losing positions and try to turn losers into winners is to use the CME SPAN software. Buy it and learn to use it. Developed in 1988, CME's Standard Portfolio Analysis of Risk (SPAN) system for calculating performance bond requirements was the first futures industry performance bond system ever to calculate requirements exclusively on the basis of overall portfolio risk. Since its implementation, SPAN has become the industry standard and is now the official performance bond mechanism of nearly every registered futures exchange and clearing organization in the UNITED STATES, and many global entities.

For margin calls, your load your positions in and find out what your current margin is and then you start adding adjustments; sell calls/puts, long/ short futures, narrow spreads, etc. to see what gets your margin down and out of margin call!

With a degree in Accounting and an MBA in Management, Richard Jones worked his way up the corporate ladder to become an Assistant controller of Ticketron in N.Y.C. In 1981, he changed his career and became a broker. He worked for several retail option trading firms where he specialized in selling options and using his "cash-free trading" approach to the markets.

In March 2004, Richard opened Distinctive Trading and currently clears through P.F.G. as a G.I.B. He trades all markets but prefers to trade "using the market's money" to cover his trading outlays using a strategy that combines futures and selling more options than you buy.

In May 2002, Futures magazine published his article" Trading with the market's money". One of Richard's forte is getting out of margin calls using CME span software program.

Richard last year earned a 22% quarterly return in PFG's CTA Traders' Challenge in the 1st quarter +12% in the 2nd quarter.

As always, past performance is not indicative of future results.