Question

A trader buys one July futures contracts on frozen concentrated orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is $6,000 per contract, and the maintenance margin is $4,500 per contract. At what price would the trader receive a margin call (please enter your answer in cents per pound).

Answer 1

Answer: $1.5

Step-by-step explanation:

There would be a Margin Call when the maintenance margin is reached.

This would mean that for a Margin Call to be triggered $1,500 would need to be lost per contract (Initial Margin - Maintenance Margin which is $6,000 - $4,500).

To calculate the Futures Price we can then use the following,

-$1,500 = (Futures Price - $1.6) x 15,000

Futures Price = -1,500/15000 + 1.6

Futures Price = $1.5

If the Futures Price gets to $1.5 there will be a Margin Call.

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