# Mechanics of Futures Market

*(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?

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 â€“ 12,500 = 17,500

Price of share after this loss = 50 â€“ 17.5 = $32.50

Hence the investor will get the margin call when the price falls to $32.50

*(Important)*

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

When stock goes down to $10, the loss = 1000 x (50 â€“ 10) = 40,000

Hence margin account becomes 30,000 â€“ 40,000 = -10,000

Hence the investor will need to pay [(30,000 â€“ (-10,000)] = 40,000 as variation margin