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67 Cards in this Set
- Front
- Back
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Earnest money or performance bond for futures
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Margins
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What does margin show clearinghouses?
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One's intention to purchase, sell, or fulfill the futures contract.
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Normal amount of margin compared to contract value
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5%-10%
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Who sets the margin requirements for brokerage firms?
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the Clearinghouse
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Who sets the margin requirements for customers
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Brokerage Firms
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_________________ is deposited by a firm with its clearinghouse to assure that firm's performance.
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CLEARING MARGIN
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Margin requirements vary _____.
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Daily
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how often are account statements prepared by the clearinghouse?
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Daily
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The clearinghouse practice of adjusting all futures accounts according to gain or loss from price movement
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Settlement
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When a client opens a position, the margin deposited is call_____________
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Initial Margin
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True / False
No withdrawals may be made which cause an account to fall below the initial margin level |
TRUE
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True / False
If a client has accounts at more than one brokerage house, each account must be fully margined |
TRUE
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Margin is affected by the ______________, or volatility
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amount of risk in the market
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The more risk, the ______ the required margin deposit
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MORE
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Adding additional contracts in decreasing amounts based on the profits from an existing position
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Pyramiding
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Maintenance margin is __% of the initial margin
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75%
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The call for more funds when money on hand falls below the maintenance margin level
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Maintenance Margin Call
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Margin for hedgers is ______ than for speculators
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LESS
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Hedge positions usually involve ___ risk
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LESS
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How should hedging trades be verified to the client?
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A letter
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True or False
Failure to meet a margin call authorizes the broker to liquidate the position |
TRUE
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A call when wide price fluctuations substantially reduce a clearing member's margin deposits, that must be paid in 1 hour.
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VARIATION MARGIN CALL
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PROFIT
-------------- Initial Margin = |
Return on Required Margin
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Margin requirements at CBOT may be increased to ____% of the previously required amount
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150%
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MARGIN DEPOSITED
-------------------------------- TOTAL CONTRACT VALUE = |
Ration of margin deposited to total contract value
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Open and carry each customers and option customers account with a carrying FCM on a fully disclosed basis
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What an IB must do
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T/F
IB's may not accept money, securities, or property, or extend credti to margin, guarantee or secure trades of customers or options customers |
TRUE
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ex-pit
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outside the trading pits, where open outcry is required
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What ex pit futures transactions are allowed?
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1. exchange of futures for actual commodities
2. Cash transactions permitted on the CBOT floor |
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Are matching of orders by pit brokers allowd?
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NO
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When must confirmations of trade be send out?
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the next day for futures and options
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When must purchase and sale agreements be sent out?
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When the position is closed
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When must monthly statements be sent out?
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Monthly
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A trade executed by one broker for the client of another broker, and is then given up to the regular broker
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A customer "give-up"
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Who and why are price limits set?
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They are set by exchanges as a means of restricting price movements
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Do all exchanges or futures contracts have price limits?
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NO
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Can trading occur at limit?
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Yes
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What happens when trading goes beyond the limit
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trading stops, hits "lock limit"
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Do price limits guarantee a fill of an order
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NO
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When does trading begin again after a lock limit scenario?
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When it comes back into trading range, or the next trading day.
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What is trading range based on?
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The previous day's settlement/closing range
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Do all contracts have limits
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No, some do not, some are lifted during the spot month
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Variable price limits that temporarily halt trading
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Circuit breaker limits
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Trading stops for ___ minutes if the primary futures contract is limit offered at the end of the 10 minutes ir 45 minutes before close of trading
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TWO
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Are there daily price limits for single stock futures?
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NO
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how many bbls per oil contract
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1000
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Is margin a downpayment?
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NO. it s a performance bond or earnest money
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What is a margin call?
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A call for more money to be deposited if margin account falls below a set level
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Who is more financially secure - hedgers, or speculators
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HEDGERS
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Orders must be stamped within ____ minute(s) of receipt
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1
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For non options, when must the confirmation of a trade occur?
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The same day as the trade, the next day for options
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when must a clearing member firm report its list of buy and sell transactions to the clearinghouse?
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At the end of every trading day
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Choosing a futures contract with similar characteristics and price movements to the commodity being hedged
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CROSS HEDGE
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Taken together, the practice of cross hedging and the theory of price convergence of near-month futures and cash prices make clear the reason for the __% delivery rate among futures contracts
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3%
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The simultaneous purchase and sale of the same commodity in different markets to profit from unequal prices
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Arbitrage
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Why do the futures price and the cash price of a commodity tend to converge as the delivery date draws near?
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Because arbitrage would occur if the two prices were not approximately the same on delivery day
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What might happen in the futures contract prices were lower than the cash commodity prices on the last day of trading?
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Traders would buy the futures, sell the cash, and take delivery on the futures to deliver in the cash market, profiting from the price difference
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T/F
Computers completely eliminated human error when handling trades |
FALSE
Error can still occur on input |
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Who chooses the daily settlement price for each futures contract?
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The clearinghouse
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T/F The daily settlement price is always the last trade price
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FALSE
It is chosen from the chosen range, often in the middle of the range |
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How is the closing range determined?
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By those trades taking place between the warning bell and close of trading
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When may futures contracts be delivered?
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Only during the specified delivery period and to the specified delivery locations
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What is "regular for delivery"
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A location, i.e. a warehouse, that is approved by the exchanges for the delivery of goods from futures contracts
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What are the steps to deliver on a contract?
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1. Seller must provide a "notice of delivery"
2. Clearinghouse assigns the delivery to the oldest net long 3. Seller sets date of delivery 4. Delivery must be of "basis grade" 5. Delivery is at sellers convenience, and they choose the delivery point 6.Warehouse receipt is traded for certified check from buyer 7. Payment MUST BE MADE BY 1PM on day of delivery 8. Title is transferred |
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who sets the date of delivery
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the seller
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Can the buyer demand delivery at any time during the delivery period?
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No.
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Transfer of delivery notice must take place within ___ hour(s)
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1/2 hour
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