Chapter02 - Mechanics of Futures Markets Chapter 2 1...

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1 Mechanics of Futures Markets Chapter 2
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2 Futures Contracts Available on a wide range of underlyings Exchange traded Specifications need to be defined: What can be delivered, Where it can be delivered, & When it can be delivered Settled daily
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3 Margins A margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract
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4 Example of a Futures Trade An investor takes a long position in 2 December gold futures contracts on June 5 contract size is 100 oz. futures price is US$400 margin requirement is US$2,000/contract (US$4,000 in total) maintenance margin is US$1,500/contract (US$3,000 in total)
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5 A Possible Outcome Table 2.1, Page 27 Daily Cumulative Margin Futures Gain Gain Account Margin Price (Loss) (Loss) Balance Call Day (US$) (US$) (US$) (US$) (US$) 400.00 4,000 5-Jun 397.00 (600) (600) 3,400 0 . . . . . .
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Chapter02 - Mechanics of Futures Markets Chapter 2 1...

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