Futures Margin Calculation

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1 Notes Mechanics of Futures'!A1
2 01. Futures Margin Example'!A1
3 02. Futures Margin Example'!A1
3 03. Futures Margin Example'!A1
4 04. Futures Margin Example'!A1
5 05. Futures Margin Example'!A1
6 06. Futures Margin Example'!A1
7 07. Futures Margin Example'!A1
8 08. Margin Calculation Model'!A1
9 09. Margin Ac Prob 1'!A1
Futures Contracts are Exchange traded contracts
High Liquidity
Futures Underlying can be
Stocks
Currency
Bonds,
Commodities
Indexes

Mechanics of Futures
Closing a Futures Transaction meaning taking opposite positio
Futures contracts can be closed before expiry dates by taking
Over 95 percent of futures contracts close before maturity.

Physical delivery: This was the only way of closing futures in

delivery, the short gets cash from the long and obtains a ware
gives ownership of goods held in a licensed warehouse or a sh
that is a promise by an exchange-approved facility to deliver t
under specified terms.

Futures Contracts are Standardised meaning - Exchange speci

Limitation of choice of underlying variables
Lot size
Expiry
Settlement methods
Delivery - Phyiscal or Cash Settlement
Price Quotes

Margins on Futures
Initial Margin
Maintenance Margin
Initial Margin - Some % of Notional Value of the contract desi
Maintenance Margin - Mostly 75% of initial margin value for e
When the margin ac balance becomes equal or falls below th
a margin call occurs, leading to topping of margin ac upto initi
The trader can withdraw any surplus over the initial margin d
When he closes the position on futures, the margin ac balanc
His profit or loss on his position will be calculated after closing
during margin calls .

Net P/L on Futures Position) =Balance on Margin ac - (Initi

ntracts

ing opposite position on the same contract

piry dates by taking opposite positions, squaring off
before maturity.

f closing futures in the past. In a physical

and obtains a warehouse receipt that
d warehouse or a shipping certificate
d facility to deliver the commodity

ng - Exchange specifies
of the contract desied by the echange for each futures contract
al margin value for each contract
ual or falls below the maintenance margin,
margin ac upto initial margin immediately.
the initial margin during trading.
e margin ac balance will be redeemed,
culated after closing of his futures position +/- any topping of his margin ac

on Margin ac - (Initial Margin+ Margin Ac Topups if any-Withdrawal if any)

 g of his margin ac

Withdrawal if any)
Margin Account Illustration

Investor 'A' has taken a long position and Investor 'B' has take
The lot size associated with the contract is 75. (lot size)
The Initial Margin is assumed to be 10% of one futures contra
The futures settlement prices on the following 5 (five) days ar

Day Closing Price Settlement Price

1 9950
2 9920
3 9750
4 9600
5 9680

Prepare a market to market margin settlement statement in t

if the contract is closed on the 5th day.

Solution

Futures price of Nifty at the time of Long or Short Position : 99

Lot size :
No of Long or Short Contracts
Value of one futures contract :
(Futures Price at T0 * Lot size * No of contracts)
STEP 1 Initial Margin 10% of Value of futures * no of contracts
STEP 2 Maintenance Margin 75%* of Initial Margin

Margin statement Calculation

Mr A (long position)
Change in Price

Futures Daily
Day Price Gain /Loss
0 9900
1 9950 50 3750
2 9920 -30 -2250
3 9750 -170 -12750
4 9600 -150 -11250
5 9680 80 6000
Closing
Balance

Closing Balance
-(initial margin
Net + Margin call
gain /loss amount
for Mr A topped up) -16500
 Closing Balance
-(initial margin
Net + Margin call
gain /loss amount
for Mr B topped up) 16500
nd Investor 'B' has taken a short position in Nifty Futures at 9900. (one conta
t is 75. (lot size)
% of one futures contract and the maintenance margin is 75%. Of initial marg
llowing 5 (five) days are as follows:

ttlement statement in the accounts of both the investors and find out the gai

ng or Short Position : 9900 F0 9900

75
1
742,500.00 NOTIONAL VALUE
ontracts)
es * no of contracts INITI 74,250.00
of Initial Margin MAINT 55,687.5

g position) Mr B (Short position)

Change
in Price
Margin Daily
Margin Ac Call @ Closing day Gain
balance 55688 Day Futures Price /Loss
74,250.00 0 9900
78,000.00 1 9950 -50 -3750
75,750.00 2 9920 30 2250
63,000.00 3 9750 170 12750
51,750.00 22500 4 9600 150 11250
80,250.00 5 9680 -80 -6000

80250 closing balance

Loss
Profit
00. (one contact)

Of initial margin.

nd out the gain / loss

L VALUE
sition)

Margin Margin
Ac Call @
balance 55688
74250
70500
72750
85500
96750
90750

90750
Mukund, a cashew merchant, wants to buy five cashew contra
The initial margin for Mukund is 5.5% of the contract value
The futures price is for each carton, and the contract size is 50
Mukund closes out his position on March 16.
The futures prices from March 6 to March 16 are shown below
The variation margin is INR 50,000
Prepare a margin account for Mukund. March 5 is a Monday,

Date Futures Price

Mar-05 5600
Mar-06 5650
Mar-07 5675
Mar-08 5610
Mar-09 5570
Mar-12 5520
Mar-13 5400
Mar-14 5480
Mar-15 5570
Mar-16 5650

On March 5, Mukund takes a long position in five cashew futu

The total value of five cashew con- tracts = 5 × 50 × 5,600 = I
Initial Margin = 5.5% of the total contract value = 0.055 × 1,4
Maintenance Margin
Total value = Futures price on that day * Contract size * Num
The daily gain or loss is the difference between the total value
A buyer of futures gains when the futures price increases and

Futures Price
Contract Size
No of contracts

Daily gain or
Date Futures Price loss
Mar-05 5600
Mar-06 5650 12500.00
Mar-07 5675 6250.00
Mar-08 5610 (16250.00)
Mar-09 5570 (10000.00)
Mar-12 5520 (12500.00)
Mar-13 5400 (30000.00)
Mar-14 5480 20000.00
Mar-15 5570 22500.00
Mar-16 5650 20000.00

TOTAL GAIN OR LOSS (67,500.00)

ants to buy five cashew contracts on March 5 at INR 5,600 each.
s 5.5% of the contract value
ton, and the contract size is 50 cartons
on March 16.
6 to March 16 are shown below.
MAINTENANCE MARGIN
ukund. March 5 is a Monday, and trading takes place only on weekdays.

ng position in five cashew futures at INR 5,600.

on- tracts = 5 × 50 × 5,600 = INR 1,400,000.
al contract value = 0.055 × 1,400,000 = INR 77,000
50,000.00
hat day * Contract size * Number of contracts.
erence between the total value of contracts on that day and the total value of c
he futures price increases and loses when the futures price decreases.

5600 Days Profit /Loss * Lot size * no of

50
5
50,000

Margin Ac Balance Margin Call

77,000.00 NO NO
89,500.00 NO NO
95,750.00 NO NO
79,500.00 NO NO
69,500.00 NO NO
57,000.00 NO NO
27,000.00 50,000 YES
47,000.00 30,000 YES
69,500.00 NO NO
89,500.00 NO NO
R 5,600 each.

e only on weekdays.

Notional value
 ay and the total value of contracts on the previous day.
s price decreases.

fit /Loss * Lot size * no of contracts

Futures Margin Ac
On June 12 2017, Mr Robert took
Initial Margin requirement was GB
The Investors closed his position o
Prepare a margin account and fin

Jun-17 13
Settlement prices 33.80

The standard size

of Soyabeans
Futues Oil
contract :
Long Futures
Solution
Initial Margin 9000
Maintenance marg 7200

60000
Trading Day Futures
0 33.25
1 33.80
2 32.90
3 31.25
4 29.75
5 30.40
6 29.10

Profit or Gain
 Closing Balance -(Initial Margin +

43,050.00
IM 45,000.00
Amount
Depoisted 10,500.00

Loss -12,450.00
Robert took long position in five Soyabean oil futur
ment was GBP 9000 while the maintenance margin
is position on 20th June 2017 when futures price w
ount and find the profit or loss of the tradr if the sett

14 15 16
32.90 31.25 29.75

60,000
 5 45,000.00
5 36,000.00

5 300,000.00 cents
ChangeDaily Gain / LoMargin AC ba
45,000.00
0.55 1,650.00 46,650.00
-0.90 -2,700.00 43,950.00
-1.65 -4,950.00 39,000.00
-1.50 -4,500.00 34,500.00
0.65 1,950.00 46,950.00
-1.30 -3,900.00 43,050.00
Closing Balance 43,050.00
al Margin + Amount Deposited)
oyabean oil futures at an exercise price of Cents 33.
ntenance margin was GBP 7200 per contract.
n futures price was cents 29.10 per LB.
he tradr if the settlement prices on the subsequent

19 20
30.40 29.10

lbs
Margin Call @36000

10,500.00
Cents 33.25 per lb.

bsequent days were

Problem No 3
Futures Margin Account Calcula

On 15th March 2017 Mr Pratap

Initial Margin of the contract is
The closing prices of the Future

Dates (Marc 16
Price In Rs 172

Prepare a margin account of the

called for .
Contract siz 4000

Solution: Futures Price

Value of the 170
Initial Marg10* Value of contra
Maintenanc3/4th of Initial marg

No of Share 4000
No of Contr 5
20,000.00
Trading Futures
Day Price
Mar-15 170
Mar-16 172
Mar-17 169
Mar-20 174
Mar-21 176
Mar-22 172
Mar-23 175
Mar-24 183

Profit / Loss
Total Deposit
Closing Balan
Profit / Loss
unt Calculation

Mr Pratap has taken short position in f

contract is 10% and maintenance mar
the Futures price are given below:

17 20
169 174

count of the investor assuming that if a

 shares

Lot size No of Contracts

4000 5
e of contract
Initial margin

Lot size
Short Contracts

Change In Daily Gain /

Price Loss
 -2 -40,000.00
3 60,000.00
-5 -100,000.00
-2 -40,000.00
4 80,000.00
-3 -60,000.00
-8 -160,000.00
Closing Balance

340,000
120,000
140,000
 600,000
340,000.00
-260,000.00
sition in five fuures contractsat Rs 170
ance margin is3/4th of the initial marg
low:

21
176

g that if a margin call is made at any tim

acts
3,400,000.00
340,000.00
255,000.00

Margin Ac
Blance
 340,000.00
300,000.00
360,000.00
260,000.00
220,000.00
420,000.00
360,000.00
200,000.00
ance
es contractsat Rs 170 per share of NTP
4th of the initial margin.

22 23 24
172 175 183

call is made at any time the investor w

NOTIONAL VALUE

Margin Call
@2,55,000
No
No
No
120,000.00
No
No
140,000.00
340,000.00
are of NTPC.

investor would deposit the amount

ount
Mr Rakesh has entered in to a short futures contract to sell A
The standard size of the contract is 25 bales
Initial Margin is Rs 50,000
Maintenance Margin is Rs 40,000
What price change will lead to margin call to the investor?
What will happen if the investor does not honour the margin
Solution
Initial margin 50,000
Maintenance Margin 40,000
Size of the contract 25
Margin call occurs when the cotton price increases by more th

Calculation
Margin call will occur if the price increase by more than Rs 40
(Initial Margin - Maintenance Margin) /Size of the contract

Original Price of futures 17900

Ie) if the price increases by

Margin call occur if the price of cotton is

Mr Rakesh has entered in to a LONG futures contract to sel

The standard size of the contract is 25 bales
Initial Margin is Rs 50,000
Maintenance Margin is Rs 40,000
What price change will lead to margin call to the investor?

Price decrease will result in a margin call

Long position Margin Call

When you loose money , when the undelying
margin ac balance touches the maintenance
Size of the loss (Initial Magin-Maintenance Margin)
Short Position
You loose money when the price goes up
Margin call happens, when the margin ac bal
the maintenance balance limit or goes below
Size of the loss

NEXT DAY YOUR POSITION WILL BE CLOSED BY THE BROKER

YOUR MARGIN AC WILL BE DEBITED AND YOU WILL BE A SERV
AMOUNT + INT +PENALTY.
YOUR ACCOUNT WILL FROZEN AND YOU WILL BE DEBARED FR
es contract to sell Aug 2019 cotton for Rs 17,900 per bale on the commodity

to the investor?
honour the margin call?

ncreases by more than Rs 400 per bale (if the value increases by more than R

by more than Rs 400 per bale

e of the contract 400 per bale Please note : Margin c
when the margin ac re

400
18300

ures contract to sell Aug 2019 cotton for Rs 17,900 per bale on the commodi
 to the investor?

17900
400
gin call 17500

when the undelying price goes down to the extent ,

s the maintenance margin or goes below
e Margin)

e price goes up
n the margin ac balance touches
limit or goes below

D BY THE BROKER
YOU WILL BE A SERVICED NOTICE FOR

WILL BE DEBARED FROM TRADING AS A DEFAULTER

e on the commodity exchange.

eases by more than Rs 18,300 per bale )

lease note : Margin call happens, when you have losses on your futures posi
hen the margin ac reaches equal or below the Maintenance margin

bale on the commodity exchange.

n your futures position,
nce margin
Mr Peter bought Twenty (20) T- Bill Futures Contract in IMM
The Initial Marging is Rs
and mainteanance Marging is
The settlement Price of T-bill futures contract for the first five

Day Settlement Price

1 124.50
2 123.90
3 123.20
4 123.50
5 122.90

Prepare margin account statement showing daily gain or losse

Size of the contract

Solution
Lot size
No of Contracts
Initial Margin
Mainteance Margin
Trading Day Futures Change in Price
Price

0 125 0
1 124.50 -0.50
2 123.90 -0.60
3 123.20 -0.70
4 123.50 0.30
5 122.90 -0.60

Profit
ill Futures Contract in IMM at Rs 125.
8000Per contract
6000Per Contract
res contract for the first five days are as follows

nt showing daily gain or losses of the investor from futures contract.

2500

2500
20
160,000.00
120,000.00 trigger margin
Daily Gain/ Loss Margin Ac Margin Call
Balance

0 160,000.00
(25,000.00) 135,000.00
(30,000.00) 105,000.00 55,000.00
(35,000.00) 125,000.00
15,000.00 140,000.00
(30,000.00) 110,000.00 50,000.00
Balance 160,000.00
(105,000.00)
Total Investment 265,000.00
balance 160,000.00
Profit /l0ss 105,000.00
m futures contract.
Margin Call
Yes or NO

No
No
Yes Margin call
No
No
Yes margin call
No
An investor Mr Santhosh took 5 short positions in Pou
an exercise price of Rs 85.50 per pound.
The size of one futures contract is GBP 62,500.
The Initial margin is 10% of the Notional Value of the
Maintenance Margin is 75% of the initial margin
The futures price for the first ten days of the contract

Day Futures Price

1 86.00
2 86.25
3 86.10
4 87.00
5 87.70
6 87.10
7 87.90
8 89.85
9 89.00
10 88.30

Prepare a margin account assuming that all margin ca

Given
No of contracts
Long or Short
Lot size
Underlying
Futures price
Notional value
Initial Margin
Maintenance Margin

Change in Price
Day Futures Pric
0 85.5
1 86.00 0.50
2 86.25 0.25
3 86.10 -0.15
4 87.00 0.90
5 87.70 0.70
6 87.10 -0.60
7 87.90 0.80
8 89.85 1.95
9 89.00 -0.85
10 88.30 -0.70
Profit or loss at the end of the 10th day
 5 short positions in Pound Futures contract at an
er pound.
ct is GBP 62,500.
e Notional Value of the contract
the initial margin
en days of the contract are given below

uming that all margin calls are honoured immediately.

 5
Short
62,500.00
GBP/INR
85.5Per gbp
26,718,750
2,671,875.00
2,003,906.25

Margin Ac
Daily Gain /Loss balance
2,671,875.00 Top up
(156,250.00) 2,515,625.00 No
(78,125.00) 2,437,500.00 No
46,875.00 2,484,375.00 No
(281,250.00) 2,203,125.00 No
(218,750.00) 1,984,375.00 Yes 687,500.00
187,500.00 2,859,375.00 No
(250,000.00) 2,609,375.00 No
(609,375.00) 2,000,000.00 Yes 671,875.00
265,625.00 2,937,500.00 No
218,750.00 3,156,250.00 No
10th day (875,000.00)
 $80.00Initial stock pri
500Number of sha
65%Initial margin (P
55%Maintenance M

$26,000.00Cash required
$62.22Lowest price th

$60.00CURRENT sto
Yes Will there be a
$500.00 Additional mon
al stock price (Stock price when margin position
mber of shares purchased
al margin (Percentage)
ntenance Margin (Percentage)

sh required to establish your initial margin positi

west price the stock can reach before you receiv

RRENT stock price

there be a margin call?
ditional money you must deposit to meet your m
gin position was opened)

argin position (Minimum)

you receive a margin call

eet your margin call (Minimum)

Value of the corn contr
Initial margin
Maintenance Margin
Position
When the margin call wil
Answer
 If the value of corn falls

Note : A 5% fall w
A 5% incre

Futures & Leverage

Current Futures Price of oil p

Lot size
Nominal Value of the one con
Initial Margin
Position

Price P/L % Change in Profit

1.00 1000 0.91%
-1.00 -1000 -0.91%
0.50 500 0.45%
 rn contr 17200USD
10%
Margin 5%
Long
gin call will happen ?
860Margin ac fallen by
orn falls 1% 172
5% 860

A 5% fall will trigger a margin call for a

A 5% increase will trigger a margin call

of oil p 110
1000bbls
one con 110,000
 10% 11,000
Long
Using Data Table
e in Profit /Loss 1
P/L Changes 0.91%

Price changes
1
P/L Changes 0.91%
 1720
860

n ac fallen by 50%
Margin
 Margin ac will fall to 1548
Margin ac will fall to 860

rgin call for a long position

a margin call for a short position
Data Table Price changes
1.1 1.2 1.3 1.4

changes
0.9 0.8 0.7 0.6
Profit /Margin Call Yes / No
-172No
-860Yes
1.5 1.6 1.7 1.8

0.5 0.4 0.3 0.2

1.9 2

0.1