How Futures Trading Works

Futures trading examples

An investor bought a 3-months Eurodollar contract at $94.25 and deposits an initial margin of $675.

In order to trade a Eurodollar 3-months the clearinghouse requires a trader to leave a minimal margin of $675 per contract (Contract size: $1,000,000) with a Maintenance Margin level of $500.

On Day One, the price moved down to $94.225, a movement of 5 ticks [($94.25 - $94.225)/0.005]= 5.

Therefore, a 1-Tick movement in the Eurodollar 3-months contract represents a change in value of [($1,000,000 x 0.005 x (3/12)]/100 = $12.50.

Thus, the loss of value of this contract is (5-ticks x $12.50) = $62.50. Hence, the margin account balance is debited for $62.50 and the new balance becomes $612.50.

On Day Two, the price declined further by 0.055 (11 ticks) to 94.17, representing a loss of (11 x $12.50) = $137.50.

Thus, the margin balance has further changed from the previous margin balance of $612.50 to ($612.50 x $137.50) = $475.

At this point, when the margin balance has dropped below the Maintenance Margin requirement of $500, there will be a Margin Call made by the Clearinghouse.

The trader will now have to deposit funds onto the margin account to get the balance adjusted back to the Initial Margin balance level. In this case, $200 have to be deposited into the account in order to reach the initial $675.

On Day Three, the price moved up from $94.17 by 0.125 (25 ticks) to $94.295, representing a gain of (25* $12.50) = $312.5.
Now, the margin account gets credited for $312.50 and the balance becomes $987.5.

Scenario 1 (Loss Example)

The trader decides to sell the contract on day 2. In that case, he loses $200 out of his initial deposit of   $675 (-29%).

	Price	Margin Account	Debit/Credit	Margin Call	Profit/Loss
Day 0	$94.250	$675.00
Day 1	$94.225	$612.50	-$62.50
Day 2	$94.17	$475	-$137.50	+$200	-$200 (-29.60%)

Scenario 2 (Profit Example)

The trader decides to sell his contract on day 3. In that case, he makes a gain of $312.50 - $62.50 -   $137.50 = $112.50 out of a deposit of $675 + $200 = $875 (+12.9%).

	Price	Margin Account	Debit/Credit	Margin Call	Profit/Loss
Day 0	$94.250	$675.00
Day 1	$94.225	$612.50	-$62.50
Day 2	$94.17	$475	-$137.50	+$200
Day 3	$94.295	$987.50	+$312.50		+$112.50 (+12.90%)

Support for Stop and Stop Limit orders

Stop and stop-limit orders are subject to support by the exchange on which the contract is traded. The order types available are noted in the popup details for each contract.

Initial margin

The initial margins (as listed in the "Coverage" pages) are the collateral per contract that you must have in your account to open the position.

Maintenance margin

Futures contracts are traded on margin enabling you to leverage a small margin deposit for a much greater market effect.

You must maintain the Maintenance Margins (as listed in the "Coverage" pages) per contract in your account at all times. If the funds in your account fall below this margin, you will be subject to a margin call to either deposit more funds to cover your positions or to close positions - normally you will be notified through our trading platform. If your margin situation is not remedied, we may close positions at our full discretion.

Partial Fills

Partial fills may occur on limit orders and the remaining amount stays in the market as a limit order and may be filled within the order duration.

Market orders can be filled at numerous levels, the price paid will be the volume weighted average price of all the fills.

Expiry of Futures Contracts

Please note that Internaxx does not support physical delivery of the underlying assets upon expiry of a futures contract. We therefore advise you to be aware of the expiry and first notice dates of any futures contracts you invest in and ensure that you close your position before this date. If you do not close a futures position before its expiry or first notice date, Internaxx will close your position for you at the first available opportunity at the prevailing market rate. Any resulting costs, gains or losses will be passed on to you. If you require any assistance or clarification regarding the expiry of futures contracts, please contact Internaxx.