All Futures Contracts Are Traded on a Margin Basis

question 19

Essay

All futures contracts are traded on a margin basis. What does "margin" mean, and how does the use of margin affect the inherent risk-return nature of the futures market?

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Definitions:

Marginal Cost

The monetary cost of fabricating one more unit of a product or service.

Marginal Revenue Curve

A graphical representation showing how marginal revenue varies with changes in quantity sold.

Kinked

Often relating to the kinked-demand curve seen in oligopolistic markets, where firms face a price elasticity that abruptly changes as prices increase or decrease.

Oligopolist

A seller in an oligopoly market, a market structure characterized by a small number of firms dominating the market.