Life Cycle of a Futures Trade. Paul Maggio Senior Vice President, Newedge USA June 18, 2013

Transcription

1 Life Cycle of a Futures Trade Paul Maggio Senior Vice President, Newedge USA June 18, 2013

2 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

3 CME Regulation Transparency Mark to Market Netting of Positions and Credit Risk = Price Discovery Benefits of Futures Trading 3

4 Trade Flow: The Basics Client Newedge (FCM) Exchange / Clearing House Front Office Front Office Client places order with Newedge. Newedge sends order to the exchange Fill is confirmed to Client Payment of margin call Fill is assigned to order Allocation is sent from Client Back Office to Newedge Back Office for processing Back Office Margin call Top day and end of day exchange trade feed Back Office Client reporting 4

5 Average Pricing System 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 The average price is

6 Asset = stock of wealth + price exposure Synthetic Asset = deposit + futures contract 6

7 Bloomberg Page WEIF <GO> Source: Bloomberg 7

8 E-mini S&P Contract Description Source: Bloomberg 8

9 Day One 9

10 Day One On Oct 11, My Client made the following trade: Buy 1 lot of Dec 12 Emini S&P 500 contracts at Based upon the day s closing prices at the exchange, the client s unrealized p&l is a gain of 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, USD. 10

11 Day Two 11

12 Day Two On Oct 12, My Client wired in 3, USD to cover their margin call. Their unrealized p&l equals a cumulative loss of USD. Since the client s total equity does not cover the initial margin, there is a margin call of USD. 12

13 Day Three 13

14 Day Three On Oct 15, My Client wired in USD to meet their margin call. They also made the following trade: Sell 1 lot of Dec 12 Emini S&P 500 contracts at The client has closed out their open position and realized a profit of USD. The client s cash balance at the beginning of the day was 3, USD minus commissions and fees of USD plus a cash entry of USD. Combined with the realized P&L, the amount of total equity in My Client s account is 4, USD. 14

15 E-mini S&P Option Description Source: Bloomberg 15

16 Day One 16

17 Option Trade - Day One On June 7th, My Client made the following trade: Buy 1 lot of June 12 Emini S&P call at 9.60 Based upon the day s closing prices at the exchange, the client s unrealized p&l is a gain of USD The exchange initial margin requirement for the client s position is the cost of the option, USD. Their margin call equals the cost of the option premium, plus the commission charges, USD.

18 Day Two 18

19 Option Trade - Day Two On June 10th, My Client wired in USD to cover their margin call and pay for the option. Their unrealized p&l equals a cumulative gain of USD. Option price today premium cost = (Not shown on the statement). Since the client s total equity covers the cost of the option, there is no additional margin call.

20 Day Three 20

21 Option Trade Day Three On June 11th, My Client made the following trade: Sell 1 lot of June 12 Emini S&P call at The client has closed out their open position and realized a profit of USD =( USD- commission of USD). Ending cash balance available to withdrawal is = (profit of option premium )

22 Reporting Tools 22

23 Summary 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 23

24 Contact Paul Maggio Senior Vice President Newedge USA