NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
Which statement about margins in equity futures trading is correct?
Margin is collected from futures participants to cover potential losses, and positions are marked to market daily with gains and losses settled each day. Both buyers and sellers pay initial margin, and holding a hedging portfolio does not remove the requirement.
- AInitial margin is paid only by the seller of a futures contract
- BMargin is collected to cover potential losses and mark-to-market losses are settled dailyCorrect
- CMargin is returned only after the contract expires, with no daily adjustment
- DNo margin is required if the position is hedged with a physical portfolio
Explanation
Both buyers and sellers of futures pay initial margin to cover potential loss. Positions are marked to market daily and the resulting profits or losses are settled each day. Hence the other statements about seller-only margin, no daily adjustment, or exemption are wrong.
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