Futures

Question 1

Future contract

Answer 1

An exchange-traded, standardised contract obligating
the buyer to purchase, or the seller to sell, an asset at a
predetermined future date and price.

Question 2

Clearing House

Answer 2

middleman between buyers and sellers in financial markets that guarantees both sides of a trade.

removes default risk — if one party fails to pay, the clearing house still completes the deal using its own financial safeguards.

Question 3

Initial Margin

Answer 3

This is your security deposit when you open a futures position

Required upfront

Held by the clearing house to cover daily losses

Think of it as the entry fee to play in the futures market — but refundable if you don’t lose money

Question 4

Maintenance Margin

Answer 4

This is the minimum balance you must maintain in your margin account

It’s usually lower than the initial margin

If your account drops below this, you get a margin call

Question 5

Variation Margin

Answer 5

This is the daily adjustment of your account based on price changes

The market is marked to market daily, so:

If your trade gains → your account increases

If it loses → the clearing house deducts from your margin

Keeps the system transparent and balanced each day

Question 6

Margin Call

Answer 6

A warning: your account dropped below the maintenance level

You must add more money to bring it back up to the initial margin

If you fail to top up, your position may be closed