Monitoring Futures Positions
by Rick Thachuk

So long as you carry a futures or futures option position, in other words, have a price exposure, you stand to gain or lose money every time that prices move. And since prices have a habit of moving around most of the time, sometimes by quite a bit, you should expect a certain amount of swing in the financial performance of your futures and futures options positions. Because of this, it is important to monitor outstanding positions.

To monitor the profit or loss of a futures position, you need to know the price at which you initially bought or sold the futures, the current market price of the futures, the size of each futures contract, and the size of your position (in contracts). The entry price and size of your position are recorded in the trade confirmation (and you should have a separate record yourself), and market prices and contract sizes are available on the web site of the respective futures exchange. The profit or loss on an outstanding futures position is the difference between the market price and the entry price, multiplied by the contract size, and then multiplied by the number of futures contracts outstanding. Some examples will make this clear. All examples use actual prices as of early 2008.

Example 1:
Several weeks ago, a trader bought 3 March 2008 sugar futures at a price of 9.89 cents/pound. The market price of March sugar is now 11.08 cents/pound. Since the trader bought futures and the price went up, he has an unrealized gain on the futures position of (not including commission and other fees which are also deducted from the account):

GAIN = (11.08 cts/lb – 9.89 cts/lb) x (1,120 lbs per contract) x (3 contracts) = $3,998

The trader can elect to realize this profit by selling 3 March sugar futures and hence, closing his position. However, there is no guarantee that the trader will be able to sell futures at 11.08 cents/pound since prices may have moved in the interim. This is especially true if the market price is delayed by several minutes before being distributed, as is common for futures prices carried over the Internet.

Example 2:
A trader bought 2 March 2008 British pound currency futures at a price of $2.0365 per British pound. The market price of March British pound futures is now $1.9845 per British pound. Since the trader bought futures and the price went down, he has an unrealized loss on his futures position of (not including commission and other fees which are also deducted from the account):

LOSS = ($1.9845 – $2.0365) x (62,500 British pounds per contract) x (2 contracts) = $6,500

The trader can elect to cap this loss by selling British pound futures and hence, closing the position. However, there is no guarantee that the trader will be able to sell futures at $1.9845 per British pound since prices may have moved in the interim. This is especially true if the market price is delayed by several minutes before being distributed, as is common for futures prices carried over the Internet.

Example 3:
A trader sold 4 March 30-Year Treasury Bond futures at a price of 115-31. (This means 115 and 31/32.) The market price of March bonds is now 114-12. Since the trader sold futures and the price went down, he has an unrealized gain on the futures position of (not including commission and other fees which are also deducted from the account):

GAIN = (115 31/32 – 114 12/32) x ($1,000 per contract) x (4 contracts) = $6,375

The trader can elect to realize this profit by buying bond futures and hence, closing the position. However, there is no guarantee that the trader will be able to buy futures at 114-12 since prices may have moved in the interim. This is especially true if the market price is delayed by several minutes before being distributed, as is common for futures prices carried over the Internet.

Monitoring open futures and options positions is necessary for effective risk control, and should be done at least once per day, typically at the close of trading. If markets are especially volatile, or if prices are near trigger levels suggested by your trading method, you may want to monitor positions more frequently. New traders, though, must be careful not to over-monitor the market. The need to know every tick may well make you “jumpy” and cause you to act differently than what your trading program and good judgement suggests.