4 A trader enters into a short futures contract to sell 5000

4. A trader enters into a short futures contract to sell 5,000 bushels of wheat for 430 cents per bushel. The initial margin is $3,000 and the maintenance margin is $1,500. What price change would lead to a margin call? Under what circumstances could S2,500 be withdrawn fronm the margin account?

Solution

Bushels A margin call would trigger on a price drop of $1,500 / 5,000 = $0.30 = 30 cents per bushel. One could withdraw $2,500 from the margin account if the price rose $2,500 / 5000 = $0.50 = 50 cents.