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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!- Topics: 0
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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 monthsSo:
(1,000,000 / 125,000) * (2 / 3)
Ans: 5.333 contracts or 5 contracts.
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