Schweser Mock #29 afternoon

With respect to Egan’s statement about the advantages of futures and Reed’s response about adjusting duration: A) Egan is correct; Reed is correct. B) Egan is incorrect; Reed is correct. C) Egan is incorrect; Reed is incorrect. Your answer: B was incorrect. The correct answer was A) Egan is correct; Reed is correct. By taking a long position in futures contracts virtually any duration up to 30 years can be achieved. The three main advantages of using futures over cash market instruments are that futures are more liquid, transaction costs are less, and futures are easier to short sell than an actual bond. --------------------------------------------------------------------------------------------------------------------- None of those addressed the statement about margin. Don’t you have to post margin for futures, but not for cash instruments?

Cash instruments by definition 100% investment is needed, futures have minimal cash requirments, typically viewed as negligible.

the 100% I wouldn’t call “margin”, i would call it “purchase”. In my trading account i have to post margin on certain illiquid stuff and options/futures, i don’t post any margin when i buy something. I disagree with the terminology.

end of the day it is an amount you spent… call it an investment. the amount is being compared, how much you would need to invest in a cash security vs. a future, both of which you are buying

In finance, a margin is collateral that the holder of a financial instrument has to deposit to cover some or all of the credit risk of his counterparty (most often his broker or an exchange). This risk can arise if the holder has done any of the following: * borrowed cash from the counterparty to buy financial instruments, * sold financial instruments short, or * entered into a derivative contract. The collateral can be in the form of cash or securities, and it is deposited in a margin account. On United States futures exchanges, “margin” was formerly called performance bond. From wikipedia. Buying a security is not the same as posting margin.