Basic Futures Question

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?

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

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…

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.

yes because you hit the maintenance margin

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.


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

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

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?

how would you calculate the margin call price?

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)]

(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.

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

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

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.

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

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

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

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.