life cycle of a futures trade - chicago mercantile · pdf filelife cycle of a futures trade...
TRANSCRIPT
Life Cycle of a Futures Trade Paul Maggio Senior Vice President, Newedge USA June 18, 2013
Contents 1. Benefits of Futures Trading: The
Exchange
2. Trade Flow: The Basics
3. Average Pricing System
4. A Futures/Option Trade: Day 1, 2 and 3
2
Benefits of Futures Trading
Regulation
Transparency
Mark to Market
Netting of Positions
and Credit Risk
CME
= Price Discovery
3
Trade Flow: The Basics
Back Office
Payment of margin call
Client places order with Newedge.
Newedge sends order to the exchange
Fill is confirmed to Client
Allocation is sent from Client Back Office to Newedge Back Office for processing
Client reporting
Back Office
Client Newedge (FCM) Exchange / Clearing House
Margin call
Top day and end of day exchange trade feed
Front Office
Fill is assigned to order
4
Front Office
Average Pricing System
The average price is 72.5120000
Allows Newedge to confirm to the client an average price when the customer receives multiple fill prices on one order or over a series of orders for the same product, same expiration month during a single trading day.
Newedge may request that the exchange calculate the average price or may calculate the average prices internally.
Example:
Futures – order for 10 Cotton futures contracts
5
Asset = stock of wealth + price exposure Synthetic Asset = deposit + futures contract
6
Bloomberg Page WEIF <GO>
Source: Bloomberg 7
E-mini S&P Contract Description
Source: Bloomberg 8
Day One
9
Day One On Oct 11, My Client made the following trade:
• Buy 1 lot of Dec 12 Emini S&P 500 contracts at 1426.30
Based upon the day’s closing prices at the exchange, the client’s unrealized p&l is a gain of 105.00 USD
The exchange initial margin requirement for the client’s position is 3,850 USD.
My Client’s total equity does not cover the initial margin requirement so they will have a margin call to be paid the next day.
Their margin call equals their initial margin requirement minus their total equity, 3,756.16 USD.
10
Day Two
11
Day Two On Oct 12, My Client wired in 3,756.16 USD to cover their margin call.
Their unrealized p&l equals a cumulative loss of 240.00 USD.
Since the client’s total equity does not cover the initial margin, there is a margin call of 345.00 USD.
12
Day Three
13
Day Three On Oct 15, My Client wired in 345.00 USD to meet their margin call. They also made the following trade:
• Sell 1 lot of Dec 12 Emini S&P 500 contracts at 1430.50
The client has closed out their open position and realized a profit of 210.00 USD.
The client’s cash balance at the beginning of the day was 3,745.00 USD minus commissions and fees of 11.16 USD plus a cash entry of 345.00 USD.
Combined with the realized P&L, the amount of total equity in My Client’s account is 4,288.84 USD.
14
E-mini S&P Option Description
Source: Bloomberg 15
Day One
16
Option Trade - Day One On June 7th, My Client made the following trade:
• Buy 1 lot of June 12 Emini S&P 500 1635 call at 9.60
Based upon the day’s closing prices at the exchange, the client’s unrealized p&l is a gain of 455.00 USD
The exchange initial margin requirement for the client’s position is the cost of the option, 480.00 USD.
Their margin call equals the cost of the option premium, plus the commission charges, 490.57 USD.
Day Two
18
Option Trade - Day Two On June 10th, My Client wired in 490.57 USD to cover their margin call and pay for the option.
Their unrealized p&l equals a cumulative gain of 494.43 USD. Option price today 985.00- premium cost 490.57= 494.43 (Not shown on the statement).
Since the client’s total equity covers the cost of the option, there is no additional margin call.
Day Three
20
Option Trade – Day Three On June 11th, My Client made the following trade:
• Sell 1 lot of June 12 Emini S&P 500 1635 call at 14.00
The client has closed out their open position and realized a profit of 198.86 USD =(770.00-480.00 USD- commission of 21.14 USD).
Ending cash balance available to withdrawal is 689.43 = (profit of 198.86+ option premium 490.57)
Reporting Tools
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Summary
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1. Benefits of Futures Trading: The Exchange
2. Trade Flow: The Basics
3. Average Pricing System
4. A Futures/Option Trade: Day 1, 2 and 3
