Margin obligation
Trading in futures with the opening of a position only has to consist so-called initial margin that works as a guarantee. The amount of the margin is prescribed by the AEX and works as a security so all parties will comply with the obligations that come with a futures contract. The margin equal for buyers as well as sellers and the amount will be returned after the position is closed. The AEX has established a minimal margin, but intermediaries are allowed to request a higher margin. Profits and losses are tracked and settled on a day to day basis, based on the closing rate of the future. It is advisable to take into account that futures are settled on a day to day basis and you need an extra capital especially for trading futures, because losses are settled immediately. Futures are highly speculative and you should not trade in futures is you do not have the capital to bear a substantial loss.

Example
It is the third Wednesday in November and the AEX index is at 465 point. Investor Henk expects an increase of the AEX index. Because of this he decides to buy two futures for the month of November on 466. These futures expire on the expiration day, the third Friday of that particular month, in this case November. Every FTI-contact covers 200 times the current value of the index. Each point that the index changes means a profit or a loss of 200 euro per contract. The value of two futures is equal to: 2 contracts x 200 x 465 x 1 euro = 186.000 euro. So in order to get the same return you can obtain with two futures, you must own an equity portfolio of 186.00 euro. To be able to trade with futures, we only have to account the initial margin, in this case the initial margin is 2 x 9.720 euro, as the current prescribed margin, = 19.940 euro. This is called the principle of leverage. So our investor Henk has bought two futures two days before the expiration date, what will happen to his position?


Wednesday
After Henk has bought the two futures, the rates increase. He decides not to cash in on his profit. The closing rate of the FTI-contract of November is 467.50, which means a profit of 1.50 points. Because futures are settled on a day to day basis he gets paid: 2 x 1.50 x 200 euro = 600 euro.

Thursday
The AEX increases with another four points. Henk can cash in on his profit at any point in time through his commissionaire, or by himself via an online broker. But Henk decides to stay put for a little while longer. The closing rate of the future does not increase with four points, like the AEX, but with three points. The rate of a future does not have to be the same as the rate of the AEX. De closing rate of the index is compared to that of the day before. Henk gets a profit of: 3 x 2 x 200= 1200 euro

Friday
Friday is the third day in November which means that the contract expires today. Henk decides not to sell his future, but to liquidate his open position through Amsterdam Exchanges, this way the future expires. This can only be done after the last day of trading and is based on the final expiry rate. This rate is determined by the futures market and based on several different rates of the AEX index on the last day of trading. Today the rate is fixed at 469. Compared to the closing rate yesterday Henk will lose 469 – 470.50 = - 1.5 points. Because he has two contracts he has a loss of 2 x 200 x -1.5 = 600 euro. The end result for this trade can be determined by adding Wednesdays, Thursdays and Fridays results. His profit is 600 + 1200 – 600 = 1200 euro. Or much easier de buying rate was 466, the closing rate 469, this means a three point difference, 3 x 200 x 2 = 1200 euro.


What are futures used for?
1. Achieving a profit
A buyer or a seller of a future is expecting a change in the underlying value. The buyer of a future profits from an increase in rates, the seller profits from a decrease. Because of this there is a possibility, for instance with the help of Perfect Indicator, to realise a profit. Because the required margin of a future is much smaller than the size of a futures contract, there is a possibility to gain a large profit, or big loss, with very little starting capital. This is called the principle of leverage. The rate of a future can, in theory, can rise or fall without limits. So, in theory, the investor can take an unlimited risk.

2. Protection against price changes
Investors can use futures for protection against unwanted price changes in financial values. Using futures in this way is called hedging, which translates to covering. Trading in futures can be arranged through a broker, by placing an order with a broker or a bank. If there is any doubt about the intermediaries with whom the broker is doing business, an investor can contact the Euronext organisation for more information about that intermediaries and if they are registered with Euronext.

Order
When you want to place an order, several pieces of information are required when doing so. You need to register the name of the future account you want to trade with, its expiry month, and the number of futures you want to trade with. Also, it needs to be clear if the order is an opening transaction or a closing transaction. You can also register a minimum or maximum price at which you want to trade.

Guarantee
If I client does not fulfil his or her obligation towards guarantee, margin, obligations, or any additional Financial obligations rising from any losses in future trades, the intermediaries can and may close one or more contracts. When this happens, the client is liable. This means that the costs and risks involved in closing such contracts are on their account.

Open position
Institutions authorized by Euronext are obliged to periodically provide each client with an overview, stating all their open positions in futures. An open position of a future can only be closed but the same broker who opened the position, it is possible however to file a written request for a transfer to another broker.

Accessing transaction data
To be able to monitor the compliance of Euronext regulations, Euronext can require inspection of all data regarding orders and transactions; this also includes the identities of all clients involved in the transactions. In some cases, the information can be handed over to the police or other law enforcement, for example when there is a suspicion of fraud or insider trading.

Attention
Please take note that we do not give trading advice, as a free subscriber you will receive buy- and sell-signals of our trading system. For specific advice related to futures, options, or other market information or to take an individual position on trades in the market, please always contact your own broker or bank. Remember that past performances are no guarantee for the future