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FRM Part I · FRM Exam Part I · Futures Markets

A trader buys 10 gold futures contracts, each covering 100 ounces, at USD 1,900 per ounce. The initial margin is USD 8,000 per contract and the maintenance margin is USD 6,000 per contract. At the end of day 1 the futures price settles at USD 1,885. What is the balance in the margin account after day 1 settlement, assuming the trader deposited exactly the initial margin and no withdrawals occurred?

The margin balance is USD 65,000. The long position loses USD 15 per ounce on 1,000 ounces, which is USD 15,000, and this is deducted from the USD 80,000 initial margin deposit through daily settlement.

  1. AUSD 65,000Correct
  2. BUSD 80,000
  3. CUSD 95,000
  4. DUSD 15,000

Explanation

Loss per ounce is 1,900 - 1,885 = 15. Total loss = 15 x 100 x 10 = USD 15,000. Initial margin is 8,000 x 10 = 80,000, so the balance is 80,000 - 15,000 = 65,000. Adding the loss (95,000) gets the sign wrong. The balance is above maintenance of 60,000, so no margin call occurs.

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