} 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
} Depending on how futures prices move from one day to the next, customers’ margin account are either credited or debited.
} Margin and Mark-to-Market
} When the margin account balance falls below the maintenance margin, margin call may be necessary to maintain the minimum balance.
} This must be done in order to keep positions open.
} Investors who cannot deposit the additional margin money (i.e., cannot make the margin call) will have his position liquidated by his broker.
} Margin and Mark-to-Market
} Margining requirements ensure that every open futures contract:
• is always covered by a minimum deposit (maintenance)
• all profits and losses are received and paid as soon as they occur.
} Margining requirements and daily marking-to-market provisions thus effectively minimize the chance of default on a futures contract.
} Margin and Mark-to-Market
} The adjustments made to this investors’ long June futures position are mirrored by similar (but oppositely signed) adjustments to an investor that has taken out a short position in the same futures contract.
} Futures trading is a zero sum game.
} 3.3 Using Foreign Currency Futures
} Currency futures are typically used for:
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