NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Derivatives
Which statement about the margin on a futures position is correct?
Initial margin is collected to cover potential losses, and futures positions are marked to market daily. Both buyers and sellers pay margin, and adverse price moves lead to additional margin calls rather than refunds, so daily settlement with upfront margin is the correct statement.
- AInitial margin is collected to cover potential losses and mark-to-market settlement is done dailyCorrect
- BMargin is paid only on the expiry day
- COnly the seller of a futures contract pays margin
- DMargin is returned to the investor each time the price moves against the position
Explanation
Initial margin is collected upfront from both buyers and sellers to cover potential loss, and positions are marked to market daily with gains and losses settled. It is not limited to expiry or to sellers, and adverse moves lead to demands for more margin, not refunds.
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