What is the purpose of an initial margin on a futures exchange?
A) To cover losses incurred between variation margin
B) To exclude retail investors
C) To pay reserve requirements
D) To cover fees due to the clearing house

Question

Quizplus · Accepted Answer

The purpose of an initial margin on a futures exchange is to cover any potential losses incurred between variation margin payments. This is necessary because futures contracts involve a high degree of leverage, allowing traders to control large positions with relatively little capital. The initial margin ensures that traders have a sufficient amount of capital to cover any losses that may occur before the next variation margin payment is due.

What Is the Purpose of an Initial Margin on a Futures