Future Basics Qn..

[April Storm]

Hi,
just a basic question on future. How do we actually earn money on futures. Do we earn money when we buy the future at price X and at the maturity date, the prices rises to $X+1, we earn money and vice versa if we short cetain future at X and we cover our position at $X-1, we get to pocket the difference. Thanks....

 

[Skimbleshanks]

Trading futures is just like trading stocks - apart from the fact that you are trading something which expires on a specified date.

It just means that prior to that date you HAVE to liquidate your position - some brokers require you to liquidate your position two or three days prior to expiry, and if you don't they liquidate your position.

There's no need to hold until near the expiry date unless you are a longer term trader - just open and close trades as you would do ordinarily with stocks.

The only thing you must know is when expiry date is as it can be somewhat volatile around that time. The emini futures (ES and NQ) expire on the 3rd Friday of the expiration month (next one is September), and rollover day is the Thursday one week and one day before the expiry day.

 

[idetkov]

Wait a second. There is another big difference between stocks and futures. Roughly speaking, with futures you cannot have unrealized profit and loss for more then one day. Let's say you have one long e-mini S&P GLOBEX future. Today the index went up 10 points. The multiplier is $50. So, you have made 10*50 = $500 today. If the index was down 10 points, you lost $500. You did not sell the future but you won/lost money! If you had $3500 on you account and you lost $500, then you will have a margin call because maintenance performance bond requirements are $3200. So, with futures you are always at risk of margin calls. It is your responsibility to watch for it every day. You can have longs stocks on your account and enjoy this kind of safety forever. Futures risk is symmetrical.