Question

3. A trader has a short position of 10 contracts in a crude oil futures contract. Yesterday’s closing price was $55.30/barrel. The initial margin is $3,375 per contract and the maintenance margin level is $2500 per contract. The trader’s current margin balance is $28,000. If the closing price today is $57, will the investor be required to deposit money into the margin account. If a deposit is required, how much money must the trader deposit into the margin account?

Answer 1

The trader has incurred a loss because the price of crude oil futures has increased.

Loss = (Today's closing price - Yesterday's closing price) * 10 * 100

Loss = (57 - 55.30) * 100 Per contract

Loss = $170 per contract

Loss for 10 contracts = 170 * 10 = $1,700

Now the account balance = Current margin balance - Loss for 10 contracts

The account balance = 28,000 - 1,700

The account balance = $26,300

Maintenance margin for 10 contracts = 2,500 * 10 = $25,000

Since the account balance is greater than the required maintenance margin for 10 contracts, the investor is not required to deposit money into the margin account.

Step-by-step explanation: