The purpose of a margin account for a futures contract is to:
A) guarantee a minimum margin of profit for the contract holder.
B) allow futures traders to have more than one contract simultaneously.
C) provide a cushion for the exchange against defaults on the contract.
D) hold interest payments until expiration.

Question

Quizplus · Accepted Answer

The purpose of a margin account for a futures contract is to provide a cushion for the exchange against defaults on the contract. This is important because futures contracts involve a high degree of leverage, and the margin acts as collateral against the potential losses that may occur during the life of the contract. The margin may be adjusted periodically to reflect changes in the market value of the underlying asset, and failure to maintain sufficient margin may result in a margin call or liquidation of the position. The margin account does not guarantee a minimum margin of profit, does not allow traders to have more than one contract, and does not hold interest payments until expiration.

The Purpose of a Margin Account for a Futures Contract