Basic Futures Question

CFA Level I
#1

An investor established a short position on a futures contract on Day 0 at a price of 100. Initial Margin is 5 and maintenance margin is 3. If the day 1 closing price is 102, does the investor receive a margin call? My thinking is that if the closing price is 102, then the investor has 3 in the margin account, which is the margin require requirement. Does he get a margin call if the closing price is EQUAL to the margin limit?

#2

I think if it hits 3, you have to bring it up to 5, so yes.

#3

My guess would be, once it hits 102.01 then you have 2.99 and that’s when you get the call and have to bring back up to 5…

#4

so you’re saying if it closes AT THE MAINTENANCE MARGIN PRICE, then you would receive a margin call. For some reason I thought it had to break the maintenance level for you to receive a margin call.

#5

yes because you hit the maintenance margin

#6

I’m pretty sure you’re okay if you have exactly the maintenance margin. Since you get interest on your margin, this doesn’t happen that much.

#7

thanks

#8

Extension - at what price does he receive the margine call?

#9

Except for when certain firms have decided to not give interest on margin anymore… Yes, it is happening…

#10

If this board is correct, he would receive the margin call if it closes at 102, which would mean he has 3 in his margin account, and 3 is maint. margin. I guess he would have to deposit 2. What do you think?

#11

how would you calculate the margin call price?

#12

Assuming you’re long: Price paid x [(1-initial margin)/(1-maint requirement)] If you’re short: Price paid x [(1+initial margin)/(1+maint requirement)]

#13

(Initial value of your margin account - New value of portfolio)/New value of portfolio >=maintenance margin, (105-102)/102=2.94. You’ll get a call.

#14

I thought it would be margin call P* 1+IM/I+MM ( the margine call formular for short) i.e 100* 1.05/1.03= 101.94

#15

So don’t you get a call since the value of your account is less than 102? AudreyMwala Wrote: ------------------------------------------------------- > I thought it would be margin call P* 1+IM/I+MM ( > the margine call formular for short) > > i.e 100* 1.05/1.03= 101.94

#16

i thought we use the (1-initial margin%)/(1-maintainance margin%) formula when we are given the margin %s. In this case we calculate it using an other formula??? Thank you for your response.

#17

There is a difference between the margins used in Brokerage accounts for buying stock used and that for the futures. 1-im/ 1-mm is the one used for stocks. For futures equity holding is not calculated. Hope that helps

#18

cfaiscomplex: (-) is for long and (+) is for short

#19

You get a call if your margin account drops to $3.

#20

trigger price for margin purchases= P (1-initial margin)/1-mantainance margin For margin purchase price below the trigger price will trigger a margin call to bring the price back to mantainance margine Trigger price of short sale = P(1+initial margin)/1+maintance margin The price above the trigger price will trigger a margin call for shorts In this problem the trigger price was 101 since this is a short and the price (102) is above 101 there will be a margin call.