Question

Margin payments are required for trading in ______contracts.

Hint:

Margins are mandatory in derivatives trading to safeguard against potential losses and defaults.

Answer 1

Margin payments are required for trading in derivative contracts, such as futures and options.
Derivatives are financial instruments whose value is derived from the underlying asset, like stocks, commodities, or indices. Because derivatives involve significant leverage and risk, exchanges require traders to deposit margin payments as a security to cover potential losses.
This margin acts as a performance guarantee and helps maintain market integrity by reducing the risk of default.