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Marking to market in futures markets An investor purchases one December gold futures contracts from New Your Mercantile Exchange (NYME). Now is June 5. The

Marking to market in futures markets

An investor purchases one December gold futures contracts from New Your Mercantile Exchange (NYME). Now is June 5. The contract size of one gold futures is 100 ounce. The initial margin is $2000 per contract. The maintenance margin is $1500 per contract. This investor deposited $2000 in his margin account. Suppose the current December futures price is $400 per ounce. If the December futures price decreased to $390.0 in June 7, then what happen to his margin account?

a. Nothing happen. He does not have to do anything about his margin account.

b. He has to deposit extra money to satisfy the maintenance margin.

c. He has to deposit extra money to satisfy the initial margin.

Answer) c.

P/L = ($393.3 - $400)1100 = - $1,000. The balance of margin account = $2,000 - $1,000 = $1,000. The balance of margin account ($1,000) < Maintenance margin ($1,500). The difference between $2,000 and initial margin ($2,000) = $1,000 = margin call (variation margin)

I dont understand the answer,what is the relationship between margin account, maintence margin, initial margin, margin call and variation margin

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