1. James Cooper

2. What are futures contracts Entering and Exiting
Agenda
What are futures contracts
Entering and Exiting
Two person
Market

3. Futures Contracts Two person contract
Buyer (long)- agrees to take delivery of something at a specified price at the end of a designated period of time
Seller (short)- agrees to make delivery of something at a specified price at the end of the designated period of time.

4. Futures Contracts

5. Futures Contracts

6. Clearinghouse Acts as intermediary
Buyer and seller of all contracts
Guarantees the performance on behalf of the two parties
Guarantee function

7. Contract Margins Initial Margin Maintenance Margin Contract equity
Updated at the end of each day
Mark-to-market
Maintenance Margin
Minimum equity level

8. Two person example Clearing house Player A (long) Player B (short)
# of contracts: 100
Margin: $5,000 ($50*100)
M.M.: $3,000 ($30*100)
Futures Contract
Asset: Gold (1oz)
Price: $1,400
Delivery: 3 days
Margin: $50
Maintenance Margin: $30
# of contracts: 100
Margin: $5,000 ($50*100)
M.M.: $3,000 ($30*100)

9. Two person example Player Equity Day Price of Gold Equity A (long)
b (short)
$1,400
Final
$5,000 1
$1,401 Δ
+$100
-$100
$5,100
$4,900 2
$1,402
$5,200
$4,800 3
$1,399
-$300
+$300

10. Two person example Clearing house Player A (long) Player B (short)
Futures Contract
Asset: Gold (1oz)
Price: $1,400
Delivery: 3 days
Margin: $50
Maintenance Margin: $30
Player A
(long)
Player B
(short)
# of contracts: 100
Margin: $5,000 ($50*100)
M.M.: $3,000 ($30*100)
Clearing house
# of contracts: 100
Margin: $5,000 ($50*100)
M.M.: $3,000 ($30*100)
Futures Contract 2
Asset: Gold (1oz)
Price: $1,399
Delivery: 0 days
Margin: $50
Maintenance Margin: $30
Player A
(short)
Player B
(long)

11. Two person example Player A (long) Player B (short) -$100 +$100
Buy 100oz of $1,400 (per oz)
Sell 100oz of $1,400 (per oz)
Sell 100oz of $1,399 (per oz)
Buy 100oz of $1,399 (per oz)
-$100
+$100

12. Market example Player Equity Day Price of Gold Equity A (long)
b (short)
C (long)
$1,400
Final
$5,000 1
$1,401 Δ
+$100
-$100
$5,100
$4,900 2
$1,402
$5,200
$4,800 3
$1,399
+$300
-$300
$4,700
Futures Contract
Asset: Gold (1oz)
Price: $1,400
Delivery: 3 days
Margin: $50
Maintenance Margin: $30

13. Summery Futures Contracts Clearinghouse Examples
Price today for an asset at a future date
Clearinghouse
Guarantee Function
Initial Margin
Maintenance Margin
Mark-to-market
Examples
Two person
Market

14. References http://www.investopedia.com/terms/c/clearinghouse.asp

15. Market example Player A (long) Player B (short) Player C (long)
+$200
+$100
S: $1,402
L: $1,399
Player C
(long)
L: $1,402
-$300
S: $1,399

16. Questions