Question

Assume you are a trader who has bought one July 2020 corn futures contract at a price of US$4.05/bu. You deposit US$880 into your margin account, which the initial margin. The maintenance margin is US$800. Over the next several trading days in the table below, identify and quantify clearly any margin calls by calculating and reporting the daily balance.

Margin Call? If Yes, how much? Day Closing Price US$/bu Action Balance Initial Margin = US$880 Maintenance Margin US$800 Buy July corn futures@US$4.05/bu US$4.05 US$880 1 US$4.04 US$830 2 US$3.85 3 US$3.81 4 US$3.71 US$3.75 6 US$3.95 7 US$4.15 8 st Ln 00

Answer 1

Calculation of lot size

Margin Balance at US$ 4.05 = 880

Margin balance at US$ 4.04 = 830

Loss per bu = 4.05 - 4.04 = .01

Total Loss = 880-830 = 50

Lot Size (total bu) = 50/.01 = 5000

Calculation of margin call

Margin call required if margin balance goes below US$ 800

Day	Closing Price US$/bu	Action	Margin Call? If Yes, how much?	Balance
1	US$ 4.05	Initial Margin = US$ 880 Maintanance Margon = US$ 800 Buy July corn futures@ US$ 4.05/bu		US$ 880
2	US$ 4.04		NO	US$ 830
3	US$ 3.85		920	US$ 800
4	US$ 3.81		200	US$ 800
5	US$ 3.71		500	US$ 800
6	US$ 3.75		No	US$ 1000
7	US$ 3.95		No	US$ 2000
8	US$ 4.15		No	US$ 3000

Explanation

Day	Closing Price US$/bu	Action	Profit/Loss	Margin balance Before Margin Call	Margin Call?	If Yes, how much?	Balance	Explanation
1	US$ 4.05	Initial Margin = US$ 880 Maintanance Margon = US$ 800 Buy July corn futures@ US$ 4.05/bu					US$ 880
2	US$ 4.04		(4.04-4.05)*5000 =-.01*5000 =-50	880-50 =830	NO		US$ 830
3	US$ 3.85		(3.85-4.04)*5000 =-.19*5000 =-950	830-950 =-120	Yes	800-(-120) =800+120 =920	US$ 800	Because the loss is more than margin balance, the loss amount plus maintanance margin is margin call
4	US$ 3.81		(3.81-3.85)*5000 =-.04*5000 =-200	800-200 =600	Yes	800-600 =200	US$ 800	Margin balance after loss is US$600, which needs to be restored to US$ 800 with a margin call of US$200
5	US$ 3.71		(3.71-3.81)*5000 =-.1*5000 =-500	800-500 =300	Yes	800-300 =500	US$ 800	Margin balance after loss is US$300, which needs to be restored to US$ 800 with a margin call of US$500
6	US$ 3.75		(3.75-3.71)*5000 =.04*5000 =200	800+200 =1000	No		US$ 1000	Because margin balance is more than 800, no margin call required
7	US$ 3.95		(3.95-3.75)*5000 =.2*5000 =1000	1000+1000 =2000	No		US$ 2000	Because margin balance is more than 800, no margin call required
8	US$ 4.15		(4.15-3.95)*5000 =.2*5000 =1000	2000+1000 =3000	No		US$ 3000	Because margin balance is more than 800, no margin call required