solution
solution.
Assume you are a trader who has bought one March 2022 corn futures contract at a price of US$5.83/bu. You deposit US$1500 into your margin account, which the initial margin. The maintenance margin is US$1200. Over the next several trading days in the table below, identify and quantify clearly any margin calls by calculating and reporting the daily balance.
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Day |
Closing Price US$/bu |
Action |
Margin Call? If Yes, how much? |
Balance |
|
1 |
US$5.83 |
Initial Margin = US$1500 Maintenance Margin = US$1200 Buy March corn futures @ US$5.83/bu |
US$1500 |
|
|
2 |
US$5.82 |
US$1450 |
||
|
3 |
US$5.63 |
|||
|
4 |
US$5.59 |
|||
|
5 |
US$5.49 |
|||
|
6 |
US$5.53 |
|||
|
7 |
US$5.73 |
|||
|
8 |
US$5.93 |
a. Suppose you decided to sell on day 5 at the closing price. Calculate your realized profit or loss on your transaction. (Ignore commissions and interest on margin funds).
b. Besides price risk, to what other form of risk are you exposed?
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