A trader buys two March futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 136 cents per pound, the initial margin is $1,960 per contract, and the maintenance margin is $1,400 per contract. What price change would lead to a margin call

Question

Business

Kipper

8 March, 02:24

A trader buys two March futures contracts on frozen orange juice. Each contract is for the delivery of 15,000 pounds. The current futures price is 136 cents per pound, the initial margin is $1,960 per contract, and the maintenance margin is $1,400 per contract. What price change would lead to a margin call

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Answers (1)

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Seth Brady · Answer 1

3.73 cents

Explanation:

Margin call occurs when the account loses more than $ 560 ($ 1960 - $ 1400).

The change in price that will lead to a margin call = Y cent * 15000 pounds = $ 560

Y cents = $ 560 / 15000 = 3.73 cents

the future price must drop more than 3.73 cents from 136 cents to below 132.3 cents