Question

Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700 and variation / minimum margin requirement is also $1,700/contract. The next three days’ settlement prices are $1.3126, $1.3133, and $1.3049.

Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day. Using the same data as question , calculate the mtm, balance and margin call / post amounts for each day if you were long one contract.

Answer 1

$1,875; $1,787.50; $2,837.50

$562.50

Step-by-step explanation:

Initial balance in account = $1700 and 125,000 EUR is the contractual size of one EUR at a price of $1.3140

Day 1 : $1.3126

Closing price = (1.3140-1.3126)(125,000)

= $175;

Current balance = 1700 + 175

= $1,875

Day 2 : $1.3133

Closing price. = (1.3126 - 1.3133)(125,000)

= $87.50.

Current balance = 1875 - 87.50

= $1787.50 (Deduct in balance due to loss)

Day 3 : $1.3049

Closing price = (1.3133 - 1.3049)(125,000)

= $1050.

Current balance = 1787.50 + 1050

= $2837.50

Long position in future contract:

= 1700 + (1.3126 - 1.3140) + (1.3133 - 1.3126) + (1.3049 - 1.3133) × EUR 125,000

= $562.50

To bring back up to the initial performance bond level - we can experience a margin call requesting for additional funds be added to your performance bond account.