Explain the margin requirement for financial futures and how marking to market affects the margin account
What will be an ideal response?
Each contract requires a margin deposit of a specified amount. Each day futures contracts are marked to market. This means that each day the margin account is changed by the gain or loss of value of the contract. Assuming a contract price of 110, if the settlement (closing) price falls to 109, the $1000 loss is subtracted from the account and an additional $1000 must be added to the margin account. Conversely, a rise in the contract price to 111 means the $1000 profit is added to the account, increasing the value of the account above the required minimum.
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