What you will learn
- Notional exposure
- Initial and maintenance margin concepts
- Available funds and liquidation risk
- Why collateral is not maximum loss
Notional exposure
Notional exposure is the amount of underlying price exposure represented by a position. With price 100, multiplier ten and three contracts, notional is 3,000. A margin deposit of 300 would not reduce the price sensitivity of that position to 300.
Initial and maintenance margin concepts
Initial margin is collateral required under stated opening conditions; maintenance rules describe conditions for retaining the position. Requirements can change. Learn the actual provider definitions, because similarly named fields may be calculated differently.
Available funds and liquidation risk
Available funds and equity affect whether obligations can be met as prices move. Forced liquidation can occur at unfavorable prices and need not preserve the original planned loss. A cash buffer is a planning decision, not a guarantee against all gaps or rule changes.
Why collateral is not maximum loss
Margin is not a maximum-loss estimate. Loss depends on price movement, quantity, multiplier, contractual protections and execution. An instrument can consume relatively little initial cash while producing a large adverse mark-to-market movement.
Worked example
A position with 3,000 notional exposure loses 5% of that notional under a simplified linear price shock: 150 before costs. Relative to collateral of 300, that loss is 50%. Leverage changes the cash sensitivity relative to posted funds.
Try it yourself
For the same position, calculate a 2% adverse notional move and compare the loss with collateral of 300. State one reason actual results could differ.
Show the worked solution
The simplified loss is 60, or 20% of 300. Execution costs, conversion, nonlinear exposure or a different actual price path could change the outcome. The exercise does not predict a liquidation threshold.
Apply this to your course project
Compare two hypothetical trade statements and explain their different net outcomes.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.