Logan sold a corn futures contract using the initial margin of $2,700.His maintenance margin is $2,000.The price of began to rise in early summer, but Logan wants to keep his contract.When his margin falls below $2,000 (minimum maintenance)
A)his contract will be automatically sold or canceled.
B)he does not need to do anything since the most he can lose is $2,700.
C)he will need to deposit at least $700 with his broker to bring his margin back up to the initial deposit.
D)he will need to deliver the corn immediately.

Question

Quizplus · Accepted Answer

When Logan's margin falls below the maintenance margin of $2,000, he will need to deposit at least $700 with his broker to bring his margin back up to the initial deposit. If he fails to do so, his contract may be automatically sold or canceled, leading to potential losses beyond the initial margin of $2,700. He does not need to deliver the corn immediately as a futures contract is a financial instrument and not a physical delivery of the underlying asset.

Logan Sold a Corn Futures Contract Using the Initial Margin