FRM Part I · FRM Exam Part I · Futures Markets
A trader buys one futures contract on a commodity with a contract size of 5,000 units at a price of 80.00 per unit. The initial margin is 6% of contract value and the trader deposits exactly that amount. What is the initial margin deposit?
The initial margin is USD 24,000. The contract value is 5,000 units times USD 80, or USD 400,000, and 6% of that notional gives the required deposit. Margin is a percentage of contract value, not of the unit price alone.
- AUSD 6,000
- BUSD 24,000Correct
- CUSD 400,000
- DUSD 4,800
Explanation
Contract value = 5,000 x 80 = USD 400,000. Initial margin = 6% x 400,000 = USD 24,000. USD 6,000 wrongly uses 6 as a dollar amount per 1,000 units, and USD 4,800 applies 6% to a 80,000 base.
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