MAF202 Lecture Notes - Lecture 2: Commodity Risk, Basis Risk, Spot Contract
Document Summary
Margin accounts: a margin is a cash or marketable security deposited by an investor with his broker. Margins minimise the possibility of a loss through default on a contract. The higher the variability the higher the margin: daily settlement: the balance in a margin account is adjusted to reflect a daily settlement. Initial margin = the amount deposited in a margin account when contract is first entered into: maintenance margin = he minimum amount that must be in the margin account. It is usually lower than the initial margin: margin call = investor receives margin call if balance is lower than maintenance margin. If balance is higher than maintenance margin they can withdraw any balance in the margin account in excess of the initial margin. Closing a futures contract: if you previously sold a futures contract, you can close out your position by purchasing an identical futures contract.
