In: Finance
Consider a hypothetical futures contract in which the current price is $82. The initial margin requirement is $5, and the maintenance margin requirement is $2. You go long 20 contracts and meet all margin calls but do not withdraw any excess margin.
The settlement price and the spot price of the underlying from day 0 to day 6 look like the following:
Day |
Settlement Price |
0 |
82 |
1 |
84 |
2 |
78 |
3 |
73 |
4 |
79 |
5 |
82 |
6 |
84 |
(1) Suppose you receive margin call in the end of each day. You need to put up additional fund into your account the next day whenever the previous day your account is equal and less than maintenance margin. The first day that you will receive margin call should be Day .
(2) The total amount that you are going to put in your account, from day 0 to day 6, will be
(3) The total loss and profit from Day 0 to Day 6, if the long holder always stays in the market, should be
(4) The ending balance in Day 3 should be
Completed table:
Initial margin = margin required per contract*number of contracts = 5*20 = 100
Maintenance margin = 2*20 = 40
- Funds will be deposited whenever there is a margin call (ending balance < maintenance margin). Enough funds are deposited to bring account balance to the initial margin ($100).
- Since it is a long position, there will be profit if today's future's price > yesterday's future price; loss if today's future's price < yesterday's futures price.
1). First margin call is received on Day 2.
2). Total amount put into the account from Day 0 to Day 6 is 280.
3). Ending balance on Day 3 is 0.