Question
An investor enters into a short position in a gold
futures contract. The contract price is Rs.1300 and the contract consists of 100 ounces of gold. The initial margin is Rs.3000 and maintenance margin is Rs.2250. If the price drops to Rs.1290 at the end of the first day and Rs.1280 at the end of the second day, how much variation margin needs to be brought in at the end of the second day by the investor?Solution
The investor in the contract is in a short position that profits from a decline in prices. His margin would rather increase by 2000 (10*100 first day and 10*100 second day) as long party in this case would have losses. Therefore, no variation margin for the investor in the question.
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