I have a question regarding the example on page 56 (reading 69) of the CFA book 09 on the mark to market example. It is said in the example that the trader can choose to close out the position of the long on day 3 as on the second day his margin balance was $10 i.e $20 dollar below the maintenance level. It is said that if price falls from $96 to $95 on opening of day 3, he has lost $10 more (since he holds 10 contracts) wiping out the margin account balance . But when you close out a position doesn’t that mean generally that you will take the opposite action i.e short. Since prices decreases, for short position it means a gain as short gains when price decreases?
you will have no position after you close it. If you go long (buy n contracts), you can close your positions by selling n contracts. If you go short (sell short n contracts), you can close your position by buying back n contracts. Does that help?
If the market opens lower, he closes out on the lower open. You can’t close out your position at yesterday’s close.
Ok thanks guy for these answers