Question

Suppose you enter into the long side of a futures contract on 5000 ounces of silver at a futures price of $16.00 per ounce. The initial margin required is $6000. If, one month later, the futures price of the same contact is $15.90, what is the dollar change in your account and the rate of return on your initial margin deposit?

Answer 1

Margin amount will be cllected in case of Future contracts to avoid counter party defaults in case of unfavourable situations.

it will be adjusted accordng to future pricce & can be called to deposit the reduced balance in Margin account as the amount in margin falls below maintenance margin, which is decided at the time of contract.

Here change in Price = ($ 15.90 - $ 16.00) per ounce

One future contract contains 5000 ounces

Reduced amount = 5000 * (-0.10)

= -500

$ change in Account = -$500

Rate of Return = Change Amount / Initial Margin

= -500 / $ 6000

= -0.0833 i.e -8.33%

Rate of return per month = -8.33%