Question

Consider an investor who contacts his/her broker on June 5^th to enter into short position on 3 December soybean futures contract.

Each contract size is 50lbs. Initial margin requirement is $5000 per contract and maintenance margin requirement is $3750 per contract. Suppose that current futures price is $1250 per pound.

Using the daily settlement process, please answer

date	futures price			loss/gain			Acct bal. (after adjusting margin call)	Margin call
5-Jun	$1,250	/lbs
	$1,240	/lbs
6-Jun	$1,235	/lbs
7-Jun	$1,215	/lbs
8-Jun	$1,245	/lbs
				total cum.loss/gain=

#1. Are there any margin calls? If so, when and by how much?

#2. How much is the total cumulative loss/gain for this account?

#3. What is the appropriate account balance at the end of June 6th, which is the highlighted part in the table above?

		#1. no, there are no margin calls.
		#1. yes, there is a margin call on June 7th, by $2250
		#1. yes, there is a margin call on June 5th, by $4500
		#2. total cumulative gain = + $750
		#2. total cumulative loss = -$750
		#2. total cumulative gain = +1500
		#2. total cumulative loss = -$1500
		#3. June 6th account balance = $17,250
		#3. June 6th account balance =  $15,750
		#3. June 6th account balance =  $20,250

Answer 1

1. Short position is entered on 5th June for 6 months future contract.

2. Contract Size = 50 lbs, contract value = 50*1250 = $62,500, Initial Margin = $5,000, Maintenance Margin = $3,750

Initial Margin refers to the Margin which is required at the time of entering into contract to protect the broker

Maintenance Margin is the minimum amount required to be maintained by the purchaser during the duration of contract the minimize the risk of fluctuations.

3. Hence, call for Initial Margin of $5,000 will be made on 5th June. Refer Below table:

Date	Future Prices	(Loss) / Gain	Acct Balance (after adjusting Margin call)	Margin call	Remarks
5th June	1250	-		5000
5th June (Day end)	1240	500	5500	0	Since, it was a short position, gain of 500 (10*50)
6th June	1235	250	5750	0
7th June	1215	1000	6750	0
8th June	1245	-1500	5250	0
	Total Cumulative Gain	250

4. Answers to the questions

a) As discussed above, there is only one margin call for initial margin of $5,000

b) The total cumulative gain for the account as on 8th June stands as $250

c) The correct answers is #2 - total cumulative gain t $750 as on 6th June.

Please let me know in case of any clarification.

Regards.