Question

A broker requires an initial margin of RM3,000 and maintenance margin of RM1,000 before an investor can place any trade or in in the futures market.
a) What is the meaning of the statement above?   
b) An investor places one contract of a long position of Kuala Lumpur Index Futures at 1,500. This contract has a multiplier of RM100. At what spot price of Kuala Lumpur Index does the investor need to put up more funds to meet the initial margin required?
c) If the investor is taking a short position of Kuala Lumpur Index Futures at 1,500, at what spot price of Kuala Lumpur Index does the broker start to call up for more funds?

Answer 1

	Initial Margin of RM 3000 means, the investor should deposit RM 3000 before execution of Futures Contract
	Maintenance Margin of RM 1000 means, if the deposit value falls below RM1000, the investor need to deposit more
	Minimum value of deposit should be maintained above RM 1000
			LONG POSITION IN FUTURE CONTRACT
					A	B=A*100
			Contract Price	Closing Future Price	Daily Gain/(Loss)	Daily Total Gain/(Loss)	Margin Account Balance	Maintenance Margin
			1,500				3,000	1,000
		(1490-1500)		1,490	(10)	(1,000)	2,000	1,000
		(1485-1500)		1,485	(15)	(1,500)	1,500	1,000
		(1480-1500)		1,480	(20)	(2,000)	1,000	1,000
	Initial Margin =	3,000
	Maintenance Margin =	1,000
	Margin Call will be made if the index falls below	1,480
	The Investor will need to put up more funds
			SHORT POSITION IN FUTURE CONTRACT
					A	B=A*100
			Contract Price	Closing Future Price	Daily Gain/(Loss)	Daily Total Gain/(Loss)	Margin Account Balance	Maintenance Margin
			1,500				3,000	1,000
		(1500-1510)		1,510	(10)	(1,000)	2,000	1,000
		(1500-1515)		1,515	(15)	(1,500)	1,500	1,000
		(1500-1520)		1,520	(20)	(2,000)	1,000	1,000
	Initial Margin =	3,000
	Maintenance Margin =	1,000
	Margin Call will be made if the index goes above	1,520
	The Investor will need to put up more funds