Question

In futures trading, the minimum level to which an equity position may fall before requiringadditional margin is most accurately termed the:

a. Initial margin.

b. Variation margin.

c. Cash flow margin.

d. Maintenance margin.

Short answer

d. Maintenance margin

Step-by-step solution

Definition of futures

A contractual agreement to buy or sell a specific security at a specified date on a set price is known as futures.

Explanation on minimum level of equity position

The lowest equity level maintained by investor is treated as the maintenance margin. It must be mandatorily maintained to ensure that there is no deficiency in the account. So, option d is the correct answer.

Explanation of incorrect options 

a. Initial margin is a proportion of the acquisition value to be met by the investors if they engage in trading utilizing the margin account. The given situation is not a case of initial margin. So, option a is incorrect.

b. To guarantee that there is enough margin available in the event that a future contract suffers losses, the investor is supposed to deposit extra funds known as the variation margin. As the given case does not depict initial margin, option b is incorrect.

c. A metric which describes its efficiency to convert sales to cash is the cash flow margin and is not the actual situation described here. So, option c is incorrect.