NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
Which of the following best describes the margin position of a futures contract buyer on a stock exchange?
A futures buyer pays initial margin upfront, and gains or losses are settled daily through mark-to-market. Both buyer and seller face margin requirements, and the full contract value is not paid upfront, which allows leverage but also daily cash obligations.
- AInitial margin is collected upfront and gains or losses are settled daily through mark-to-marketCorrect
- BNo margin is needed until expiry
- CMargin is paid only by the seller
- DThe full contract value must be paid upfront
Explanation
Futures participants on both sides deposit initial margin and daily MTM profits or losses are settled. Full contract value is not paid upfront, and buyers as well as sellers are subject to margins.
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