Choose te most appropriate answer. When buying or selling futures ,A) The intial
ID: 2772651 • Letter: C
Question
Choose te most appropriate answer. When buying or selling futures
,A) The intial margin is a performance bond paid when opening a position insuring that sellers and buyers of futures will behave as promised when marketst= turn against them and the maintenance margin is another performance bond after the opening of a futures position.
B) The initial margin is a performance bond paid when opening a position insuring that sellers and buyers of futures will behave as promised when markets turn against them and the maintenance margin is a trigger level signaling when a deteriorating margin balance has to be bought back to the initial margin level to make sure the performance bond works as intended.
C) The maintenance margin is another performance bond paid after the oprning of a futures position.
D) The initial margin is a performance bond paid when opening a position insuring that sellers and buyers of futures will behave as promised when markets turn against them.
E) All the statements listed here are correct.
Explanation / Answer
Option (B) is correct.
An initial margin is a type of performance bond that is set when a transaction is opened, to ensure that the buyer & seller will abide by the terms of contract even if the market performs against their expectations. But a maintenance margin is not performance bond, instead it is a requirement when a trigger is activated if the margin balance has fallen below a required pre-determined level.