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margin_requirement_in_future_solution x
Suppose that you enter into a long futures contract to buy May gasoline for $0.80 per gallon on the New York Commodity Exchange. The size of the contract is 42,000 gallons. The initial margin requirement is $2,000, and the maintenance margin is $1,500. What change in the futures price will lead to a margin call?
Suppose that you enter into a long futures contract to buy May gasoline for $0.80 per gallon on the New York Commodity Exchange. The size of the contract is 42,000 gallons. The initial margin requirement is $2,000, and the maintenance margin is $1,500. What change in the futures price will lead to a margin call?
As I am in long position, price decline may cause a margin call. There will be a margin call when $500 will be lost from my account balance. This will occur when price level decreases by (500/42000) = 0.0119. So if price goes below (0.8 – 0.0119) = 0.788 there will be a margin call.
