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Ask for help: futures – number of contracts calculation

This topic has 2 replies, 2 voices, and was last updated 13 years ago by Olga.

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November 29, 2011 at 7:25 am #50773
Olga
Member
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- Replies: 2
Hey guys!
Colud someone please explain how the thing with # of contracts of futures works… For example, if we need to hedge 1 000 000 euros for 2 months and a three-month contract is for 125 000 euro, why we need to sell 2/3[/b] x 1000 000/125 000? 2/3 is what I don’t understand. How the # of months is linked with monetary amount? Thanks!
November 29, 2011 at 2:17 pm #90366
Anonymous
Inactive
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- Replies: 14
Its a simple formula.
( Total amount / contract amount ) * (Duration of hedge / duration of contract )
In this scenario:
Total Amount: 1,000,000
Contract Amount: 125,000
Duration of hedge needed: 2 months
Duration of contact: 3 months
So:
(1,000,000 / 125,000) * (2 / 3)
Ans: 5.333 contracts or 5 contracts.
November 30, 2011 at 6:46 am #90367
Olga
Member
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Thank you. I meant, I know the formula, but I do not see logic in 2/3. If we exercise the future contracts in 2 months, we’ll get 5,3 * 125,000 = 662,500 euros hedged, right? And we needed a million.
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