CFA Level I · CFA Level I Exam · Derivative Instrument and Derivative Market Features
A trader buys one futures contract with an initial margin of $4,000 and a maintenance margin of $3,000. The margin account is marked to market daily. Which event most likely triggers a margin call?
A margin call is most likely triggered when the account balance falls to $2,800, because that is below the $3,000 maintenance margin. A balance equal to the maintenance level does not trigger a call, and gains increase the balance, so they never require extra funds.
- AThe account balance falls to $2,800 after a daily lossCorrect
- BThe account balance rises to $5,000 after a daily gain
- CThe account balance falls to $3,000 exactly after a daily loss
Explanation
A margin call occurs when the balance drops below the maintenance margin. $2,800 is below $3,000, so a call is issued. A balance of exactly $3,000 is not below the threshold, and a gain never triggers a call.
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