S3 5.3 Flashcards
What is the purpose of margin?
Buyers/Sellers of futures contracts deposit it to ensure performance of contracts
What’s another way of looking at margin?
Performance Bond
What is the purpose of margin / Performance Bond?
It is means to cover default risk, but it is not a downpayment!
What is a futures trader liable for?
The full futures contract value
What are the 2 types of margin?
1) Clearing margin: FCM deposits in the clearing house to ensure performance of its clients’ open futures / options on futures positions
2) Customer margin: FCM requires from its clients, and depends on both risk and size of the position
What are 2 types of Clearing Margin?
1) Initial margin: FCM deposits 2-5% face value of contracts
2) Variation margin: Caused by adverse price variations - clearing house requires FCM to add funds
What happens after a margin call is covered?
The Initial margin requirement is restablished
What is Mark-to-Market?
Clearing house values all open positions at current market prices
What is Daily Cash Settlement?
Client account’s gain/loses are adjusted based on mark to market at the end of every day
Are margin requirements higher for short positions?
No - same for both long and short positions
How is the margin requirement usually calculated?
Difference between margin requirement on long vs short positions
Is the margin requirement always the difference between long and short positions?
No - CME (Chicago Mercantile Exchange) add long and short positions
Do both speculators and hedgers have same margin requirements?
Hedgers < Speculators
What is the Initial Margin?
Margin determined at the opening of a position, to guarantee contract fulfillment
Is Maintenance Margin = Initial Margin?
Nope - Maintenance = bout 75% Initial margin
