Suppose you go short one contract of gold at today’s closing futures price of $1,300 per ounce. Suppose that your brokerage firm requires an initial margin of 5 percent of the position size ($130,000 in this example) and sets the maintenance margin at 80 percent of the initial margin. Contract size is one hundred ounces. Keep the margins constant throughout this example. Track the value of your margin account if the closing futures prices are as follows.

Clearly identify any margin call received and the amount of variation margin that you have to produce.

Day                              Closing Futures Price (dollars/ounce)

0 (today) …………………………                 1,300

1 ………………………………….                1,303

2 ………………………………….                1,297

3 ………………………………….                1,290

4 ………………………………….                1,297