CMFAS CM-SIP Derivatives — Futures & Forwards question: Initial margin

CMFAS CM-SIPDerivatives — Futures & Forwards

Initial margin differs fundamentally from an option premium because it is:

A paid to the seller at inception and never refunded, even if the trade profits.
B a charge for the time value of the contract, deducted daily until expiry.
C a refundable performance bond, returned on close-out unless losses have used it up.
D equal to the full notional value of the contract, paid up front by the buyer.

Show the answer and explanation

Answer: C. a refundable performance bond, returned on close-out unless losses have used it up.

Margin is a good-faith performance bond, not a payment for the contract; it is returned when the position is closed, unless adverse marking has consumed it. A premium, by contrast, is a paid-away cost.

Common mistake

Treating margin like an option premium — a non-refundable payment for the position.

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CMFAS CM-SIP Derivatives — Futures & Forwards question: Initial margin

Answer: C. a refundable performance bond, returned on close-out unless losses have used it up.

Common mistake

Related CMFAS CM-SIP questions

CMFAS CM-SIP Derivatives — Futures & Forwards question: Initial margin

Answer: C. a refundable performance bond, returned on close-out unless losses have used it up.

Common mistake

Related CMFAS CM-SIP questions