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Dear John,
In part b How examiner calculate Daily settlement of 3rd June and loss of $16250.
Can you please explain that ?Can you please explain the logic behind (loss). How come it is loss…. Stuck with it completely.. and same for 4th june $4000 profit.
Please help….
When dealing in futures, you have to pay a deposit (margin) at the start. At the end of the deal you get the deposit/margin back plus any profit or less any loss on the deal.
From day to day during the period the price of the futures will go up and down, and the deposit/margin will be adjusted – if you are losing money on the futures then you will have to increase the deposit, if you are gaining money then you can reduce the deposit,
On 3 June, the 50 contracts that we bought have gone down in price, so you are losing money on them. Also the 30 contracts sold have gone up in price and so you are losing money on them as well. The total ‘loss’ is the amount by which the deposit/margin will have to be increased.
(It is not a real ‘loss’ – the real profit or loss is calculated when the futures deals are close, as normal – it is simply a calculation of how much the deposit/margin will need to be increased by, and again the total deposit will be repaid at the end of the deals.)
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