Loading....
Coupon Accepted Successfully!

 

Mechanics of Futures Market

 

 

Question: Margin Calculation (Important)

An investor bought 1000 shares of ABC company each priced at $50. The initial margin requirement were 60%.and the maintenance margin requirement is 25%. At what price would the investor be getting a margin call?
 

Solution

Total investment = 1000x 50 = 50,000
Initial Margin = 60% x 50,000 = 30,000
Maintenance margin = 25% x 50,000 = 12,500
The investor gets a call when he/she loses 30,000 – 12,500 = 17,500
Price of share after this loss = 50 – 17.5 = $32.50
Hence the investor will get the margin call when the price falls to $32.50
 

 

Question: Margin Calculation (Important)

What would be the variation margin if the stock price reduced to $10 from $50?
 

Solution

When stock goes down to $10, the loss = 1000 x (50 – 10) = 40,000
Hence margin account becomes 30,000 – 40,000 = -10,000
Hence the investor will need to pay [(30,000 – (-10,000)] = 40,000 as variation margin
 

 





Test Your Skills Now!
Take a Quiz now
Reviewer Name