CFA CFA Level 1 New confusion about Margin Calls!

New confusion about Margin Calls!

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    • Up

      I just got a question about a margin call in equities section on Q-Bank:

      When using margin to invest in equities, which of the following defines initial margin and what level will the margin be brought back to in the event of a margin call?

      Your answer: C was incorrect. The correct answer was A) minimum amount of equity required of the investor a deposit must be made to bring the margin back to the maintenance margin
      The initial margin requirement refers to the minimum amount of equity required of the investor.

      With equities, if the margin falls below the maintenance margin, funds must be deposited to bring it back up to the maintenance margin level.

      My question now: is there a difference for buying equities on margin and buying derivatives on margin regarding margin calls and required levels of funds?

    • Avatar of Dr_Pain28Dr_Pain28
        • CFA Level 2

        With equities you only need to keep the account at the maintenance margin, but with futures etc. if the account drops below the maintenance margin you need to bring it back to the initial margin again.

      • Up

        The only difference question wise is that when referring to equities most of the questions will refer to margin call price or total return given prices, with the derivs questions most of them have give you the amount of funds you have to place and the minimum $ amount of maintenance margin to have in your account; with these you need to be cognizant of the amount of contracts in the account and the multiplier of the contract. Most questions will ask about how much $ wise to bring back. Also, pay attention to whether they’re short the contracts and/or have a reserve fund

      • Up

        Thanks a lot… I was doing Alternatives / Derivatives a lot recently and got totally confused when this question popped up 🙂

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