The margin requirement will be lower than the standard requirement on a stock index futures contract when

Question

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When a futures contract is used to hedge a portfolio, the margin requirement is typically lower than the standard requirement because the risk of loss is reduced. This is because the portfolio holdings act as collateral, reducing the likelihood of default. When the stock market is declining, the margin requirements may increase due to the higher risk of loss. Establishing a speculative position could also result in a higher margin requirement as it represents a higher risk of loss.

The Margin Requirement Will Be Lower Than the Standard Requirement