What is meant by the term 'payoff structure' in futures trading? Option: The process of settling a futures contract., The potential profit or loss at different price points., The fees associated with futures trading., The schedule of margin payments.

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What is meant by the term 'payoff structure' in futures trading?

The process of settling a futures contract.

The potential profit or loss at different price points.

The fees associated with futures trading.

The schedule of margin payments.

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What is the primary motivation for a trader to enter into a futures agreement, as per the text?

Hedging against potential price fluctuations in the underlying asset

Gaining ownership of the underlying asset at a predetermined price

Diversifying their investment portfolio with different asset classes

Generating financial profit based on the price movement of the underlying asset

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What is the primary function of margin in futures trading?

To determine the daily settlement price of futures contracts.

To predict the future price movements of the underlying asset.

To ensure that both parties fulfill their obligations on contract expiry.

To calculate the potential profit or loss of a futures contract.

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In the context of futures trading, what does the term 'margin' refer to?

The percentage of the contract value required as a deposit.

The profit or loss made on a futures trade.

The total value of the futures contract.

The difference between the spot price and the futures price.

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How does the 'core transactional structure' of futures contracts compare to that of forwards contracts?

They share the same fundamental objective of capitalizing on asset price movements

Futures contracts solely focus on risk mitigation, while forwards prioritize profit

Futures contracts are more complex and involve multiple asset classes, unlike forwards

They are entirely different, serving distinct purposes

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What is the primary function of 'margin' in futures trading?

It is a fee charged by brokers for facilitating futures transactions

It serves as collateral to cover potential losses exceeding the margin amount

It represents the initial investment required to enter a futures contract

It acts as a performance bond ensuring parties fulfill their contractual obligations