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CBOT: Wheat contact trading, margin account, profit, loss,

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Wheat contract is traded on the Chicago Board of Trade (www.cbot.com)

a. If you short 5 May 2005 contracts as 376, how many dollars must you deposit in your margin account (assuming you are a speculator and thus the "speculative" margin applies to you)?

b. A day later, the price climbs to 379. What is your total profit or loss?

c. Given this profit or loss, how much must you deposit into your margin account?

d. The next day the price climbs to 381. Given this profit or loss, how much must you deposit into your margin account?

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Solution Summary

The solution explains margin rules for the Chicago Board of Trade (CBOT) which helps to understand the calculations for the margin calls.

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1. For wheat the margin is 135% so, if you sell short 5 contracts you need to pay 135% of 376 which is $2538.

2. A day later the price increases to 379 so you have a loss of 5x3 that is 15$. The initial ...

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