when buying or selling a future contract, the trader commits what amount of funds

Expert Solution

ANSWER

When a traders enters into a Future Contract (be it Buying or Selling), the Delivery of the Underlying Asset does not takes place.
Hence it does not require the Entire Amount at the time of Entering the Contract.
However to be on a Safer side , the Brokers demand an "INITIAL MARGIN MONEY" at the time of Entering into Futures Contract so that in case of Default by his Client, he can recover the loss.
Such "Margin Money" is just a type of Deposit which will get refunded at time of Maturity of Future Contract if Trader is in Profit. On the Otherhand, any loss will be adjusted from such Margin Money.
The "percentage of Initial Marging Money" is very Less as Compared to the "Total Contract Amount" therefore proving with a "LEVERAGE EFFECT" to the Trader where in he can enter into Futures Contracts which are approximately Twice the Value he Holds in his Account.
There is another Margin Requirement on Trader of Futures Contract. It is known as "MAINTENANCE MARGIN". It is not any amount "Over & Above" Initial Marging. But it is a type of a "cut off point" already set by the Broker below which if our Initial Margin Fall at any time during a Future Contract Period THEN we have to fill such shortage within specified time.
So to sum up everything in Short, there is No Cost as such to enter into a Forward Contract.

?

jeff jeffy answered 2 years ago

The process of buying or selling a future. what is involved?

when the price of a good is dependent on the future event, what amount would the...

when the price of a good is dependent on the future event, what amount would the seller recognize as revenue?

43. A company is involved in financing activities when these: activities involve buying and selling resources such...

43. A company is involved in financing activities when these: activities involve buying and selling resources such as purchasing investments and lending to others. activities involve borrowing from banks, repaying bank loans, receiving contributions from shareholders, or paying dividends to shareholders. activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools). activities are directly related to running the core business to earn profits. 31. Expenses reduce Shareholders' equity. represent the costs that arise when...

A company is involved in investing activities when these: activities involve buying and selling productive resources with...

A company is involved in investing activities when these: activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others. activities are directly related to running the core business to earn profits. activities involve borrowing from banks and repaying bank loans. activities involve borrowing from receiving contributions from shareholders, or paying dividends to shareholders. Which of the following is true? Credits decrease both assets and liabilities. Credits increase expenses...

What are the three aspects of the bond market? (Regarding the buying and selling of bonds...

What are the three aspects of the bond market? (Regarding the buying and selling of bonds as an investment) Short paragraph please! (

1-What is the difference between ecommerce and ebusiness? A-Ebusiness is buying and selling of goods or...

1-What is the difference between ecommerce and ebusiness? A-Ebusiness is buying and selling of goods or services online; ecommerce includes ecommerce and all activities related to internal and external business operations. B-Ecommerce is buying and selling of goods or services online; ebusiness includes ecommerce and all activities related to internal and external business operations. C-Ecommerce includes ecommerce and all activities related to internal and external business operations; ebusiness includes all of the of knowledge management systems D-Ecommerce includes Internet network...

What are the differences in speculating by buying vs. selling options on a stock index futures...

What are the differences in speculating by buying vs. selling options on a stock index futures such as the Nikkei 225? What is the difference between writing a straddle and a strangle? Are such trades speculative in nature?

This week we cover bond financing. Often times when large amount of funds are needed for...

This week we cover bond financing. Often times when large amount of funds are needed for a project or expansion, companies and governments seek financing to help pursue these projects. Define what a bond is and discuss the advantages and disadvantages of bond financing, such as those covered in your chapter. Consider discussing why a company might choose to issue a bond instead of stock, a form of equity financing.

What does it mean to have a “future taxable amount” and give an example of a...

What does it mean to have a “future taxable amount” and give an example of a temporary difference that would create a deferred tax liability, and what does it mean to have a “future deductible amount” and give an example of a temporary difference that would create a deferred tax asset?

Forecasting Stock Value When buying stock, you can expect to earn money through future current income...

Forecasting Stock Value When buying stock, you can expect to earn money through future current income (from ________________ increases in stock price OR dividends) and future capital appreciation (from ________________ increases in stock price OR dividends). Together, your total earnings from a given investment can be expressed in terms of the approximate yield. This value makes it easier for you to compare investment options. The formula for the approximate yield of an investment can look intimidating, but it's really just...

Question