Question

1. Suppose that you enter into a long futures contract to buyJuly silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,000. What change in the futures price will lead to a margin call? In other words, at what futures price will you receive a margin call? What happens if you do not meet the margin call?

2. Suppose that you enter into a short futures contract to sellJuly silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $3,000, and the maintenance margin is $1,500. What change in the futures price will lead to a margin call? In other words, at what futures price will you receive a margin call? What happens if you do not meet the margin call?

3. What does a stop order to sell at $2 mean? When might it be used? What does a limit order to sell at $2 mean?

4. A trader buys two July futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is $6,000 per contract, and the maintenance margin is $4,500 per contract. What price change would lead to a margin call? Under what circumstances could $2,000 be withdrawn from the margin account?

Answer 1

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