A trader went short on futures at a price of 610, lot size 1000. He deposited initial margin of 100000. Maintenance margin of 75000. What is the cut-off price beyond which there would be a margin call? In this question why is the difference between the initial and maintenance margin called a cushion and why is that difference used for calculation of cut-off price?
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Margin call = Po ( 1-Inital margin/1- maintenance margin)
So margin call = 581.495
Cushion can be interpreted like we don’t have to deposit additional fund it margin falls below initial and touches maintenance .
The trader is short on futures so if the price goes down it would favor him.
The Margin call will be made if the price goes above 610 right? (It’s a loss for him)
Margin call = Po ( 1+ Initial Margin / 1 + Maintenance Margin ) for short positions right?
And how did you compute 581.495?
the answer should be 635 beyond which there will be a margin call