Ask for help: futures - number of contracts calculation

OOlga14y ago

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!

Former user14y ago#1

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.

OOlga14y ago#2

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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