Margin Call question

vandana.jain
Finance Junkie
Posts: 41
Joined: Tue Jul 24, 2012 4:56 pm

Margin Call question

Postby vandana.jain » Tue Aug 07, 2012 3:40 pm

HI,
please help me with this question
a trader buy two long futures contract on orange juice. each contract is for the delivery of 15000 pounds. the current future price is 160 cents per pound, the initial margin is $6000 per contract and the maintenance margin is $4500 per contract. under what circumstance could $2000 be withdrawn from margin account?

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pankaj
Finance Junkie
Posts: 61
Joined: Fri Aug 03, 2012 11:24 am

Re: Margin Call question

Postby pankaj » Wed Aug 08, 2012 11:33 am

You cannot withdraw any amount from the margin account. The initial margin of $6000 has to be maintained. Since the trader is long on the contract,if the orange juice price increases he will make a profit and his account will be credited. The profit amount can be withdrawn in such a situation

abhishek.chaudhari
Posts: 8
Joined: Tue Jul 17, 2012 11:13 am

Re: Margin Call question

Postby abhishek.chaudhari » Wed Aug 08, 2012 11:41 am

Investor can withdraw funds in the margin account in excess of the initial margin. A maintenance margin guarantees that the balance in the margin account never gets negative (the maintenance margin is lower than the initial margin).

abhishek.chaudhari
Posts: 8
Joined: Tue Jul 17, 2012 11:13 am

Re: Margin Call question

Postby abhishek.chaudhari » Wed Aug 08, 2012 11:44 am

hello vandana,

we can withdraw money if ur futures price rises to 166.66 cents per pound.

see below

(166.66-160)/100*30000=2000

if u want any more explanation please let me know

vandana.jain
Finance Junkie
Posts: 41
Joined: Tue Jul 24, 2012 4:56 pm

Re: Margin Call question

Postby vandana.jain » Thu Aug 09, 2012 2:36 pm

thank you Abhishek.


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