Question

on May 2nd you buy 30 contracts of September reliance futures at rupees 420/share assume that each contact covers 50 shares the initial margin is rupees 900 /contract and maintenance margin rupees 675/contract
daily settlement prices are as follows
may 2nd -409
may 3rd-433
may4th-418
May 5th-423
whenever you allow to withdraw From margin account you are withdrawing half the maximum amount each day describe what changes take place in the margin account at the end of each day?

Answer 1

Contract amount = Rs. 420 * 50 shares * 30 contracts = Rs.630,000

Initial margin = Rs. 900 * 30 contracts = Rs. 27,000

Maintenance margin = Rs. 675 * 30 contracts = Rs.20,250

Any amount over and above initial margin amount, can be withdrawn before contract expires.

Statement showing changes in market price:

Date	Op. Price	Cl. Price	MTM	Addl. Deposit	Withdrawal	Cl. Bal.
May 2nd	420	409	-16,500	16,500	-	27,000
May 3rd	409	433	+36,000	-	18,000 (0.5*36,000)	45,000
May 4th	433	418	-22,500	-	-	22,500
May 5th	418	423	+7,500	-	1,500 (0.5*3000)	28,500

Whenever, balance goes under maintenance margin, it has to be brought up to initial margin. On May 2^nd, balance reduced to Rs. 10,500 after MTM loss, which is less than maintenance margin, hence it had to be brought up to initial margin. On May 3^rd, there was MTM gain of Rs. 36,000 over and above initial margin amount, hence half amount was withdrawn as mentioned in question. On May 4^th, there was Rs. 22,500 MTM loss, but still balance was above maintenance margin hence there was no deposit or withdrawal. On May 5^th, there was Rs. 7,500 MTM gain, and Rs. 3,000 was above initial margin, hence Rs. 1,500 were withdrawn.