Life Cycle of a Futures Trade

Paul Maggio
Senior Vice President, Newedge USA
June 18, 2013
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

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 CME

Regulation

= Price Discovery
Transparency Mark Netting
to Market of Positions
and
Credit Risk

Benefits of Futures Trading

3
Trade Flow: The Basics
Client Newedge (FCM) Exchange / Clearing House

Front Office Front Office

Client places order Newedge sends order
with Newedge. to the exchange

Fill is confirmed Fill is assigned to

to Client order
Payment of
margin call

Allocation is sent
from Client Back Back Office Top day
Office to and end of
Newedge Back day
Office for exchange
processing Margin trade feed
call

Back Office

Client reporting

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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 72.5120000

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

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Bloomberg Page WEIF <GO>

Source: Bloomberg
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 E-mini S&P Contract
Description

Source: Bloomberg
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Day One

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Day One
On Oct 11, My Client made the following trade:
• Buy 1 lot of Dec 12 Emini S&P 500 contracts at 1426.30
Based upon the day’s closing prices at the exchange, the client’s
unrealized p&l is a gain of 105.00 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, 3,756.16 USD.

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Day Two

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Day Two
On Oct 12, My Client wired in 3,756.16 USD to cover their margin
call.
Their unrealized p&l equals a cumulative loss of 240.00 USD.
Since the client’s total equity does not cover the initial margin, there is
a margin call of 345.00 USD.

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Day Three

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Day Three
On Oct 15, My Client wired in 345.00 USD to meet their margin call.
They also made the following trade:
• Sell 1 lot of Dec 12 Emini S&P 500 contracts at 1430.50
The client has closed out their open position and realized a profit of
210.00 USD.
The client’s cash balance at the beginning of the day was 3,745.00
USD minus commissions and fees of 11.16 USD plus a cash entry of
345.00 USD.
Combined with the realized P&L, the amount of total equity in My
Client’s account is 4,288.84 USD.

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 E-mini S&P Option
Description

Source: Bloomberg
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Day One

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Option Trade - Day One
On June 7th, My Client made the following trade:
• Buy 1 lot of June 12 Emini S&P 500 1635 call at 9.60
Based upon the day’s closing prices at the exchange, the
client’s unrealized p&l is a gain of 455.00 USD
The exchange initial margin requirement for the client’s
position is the cost of the option, 480.00 USD.
Their margin call equals the cost of the option premium, plus
the commission charges, 490.57 USD.
Day Two

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Option Trade - Day Two
On June 10th, My Client wired in 490.57 USD to cover their
margin call and pay for the option.
Their unrealized p&l equals a cumulative gain of 494.43
USD. Option price today 985.00- premium cost 490.57=
494.43 (Not shown on the statement).
Since the client’s total equity covers the cost of the option,
there is no additional margin call.
Day Three

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Option Trade – Day Three
On June 11th, My Client made the following trade:
• Sell 1 lot of June 12 Emini S&P 500 1635 call at 14.00
The client has closed out their open position and realized a
profit of 198.86 USD =(770.00-480.00 USD- commission of
21.14 USD).

Ending cash balance available to withdrawal is 689.43 =

(profit of 198.86+ option premium 490.57)
Reporting Tools

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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

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Contact

Paul Maggio
Senior Vice President
Newedge USA
+1 312 762 1090
paul.maggio@newedge.com

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