2, students are required to evaluate a trading strategy. In both questions, the emphasis is on analytical thinking to assess the effectiveness and implications of the strategies.

Question 2

You deposited GBP 2,500 into your recently-opened futures trading account. At that time, the spot rate for British pound against the US dollar spot was USD1.2500. This rate locked the beginning account balance in US dollars. The account has a trading leverage of 100:1, which defines the initial margin requirement. The variation margin was set at 40% of the initial margin.

You conducted futures trades (in standard contract size **) on the British pound against the US dollar. The online broker takes a 5-pip spread on either side of the mid-rate. The table below lists your trades, all executed at settlement prices:You complied with margin calls, if any.

Day US dollars per GBP Trades

(Settlement price - mid-rates)

1 1.2400 Shorted 4 contracts

2 1.2480 ---

3 1.2520 ---

4 1.2460 Squared all contracts

required:

a) Calculate your daily trading profit / loss, margin call sums if any, the net profit / loss in monetary and in percentage terms at the end of Day 4.

b)Summarize your findings in a table, accompanied by working and explanation