In study session 14 ( currency risk management reading ) page 214 Schweser calculate the return on future like this R(fut) = - ( FT - F0 ) * 1000000 Can any one explain to me why they used FT ?? i think they must use ST which is the spot price at maturity if we want to compare our gain or loss related to future price that we are agree on it at the beg of period !!! i remeber from level 2 that when you go long on future contarct and want to calculate your gain or loss the the formula at maturity is spot price at maturity minus the futre price ( which you are agree on it at the beg of period ) ?? any comment ? i realy appreciate feedback.
Please any one help me !!!:(
Doesn’t have to be ST, if you are trying to calcuate the gain/loss before the “maturity” of the future contract. Just like an option contract, it trades at secondary market. Example, I bought S&P 500 April contract for $10, now this contract trades at $15 before April, how do I calcuate my gain/loss? Make sense?
ws. i don’t mean that we use the st wheich is the spot proce at maturity i mean to use the spot price when the investment is liquidate and the hedge is lifted which is 1.2760 in this example so why not be the return on future contaract equal ( ST - F0 ) * 1000000 euro which is make sense we compare the future price which we are agree on it at the beg of contarct to the spot price when the the investment is liquidate. Also schweser don’t mention any thing about we calculate thr return before future contract maturity just the said ( when the invstment is liquidate ) .
I think that you have your notation a little messed (and since I don’t have the book you are using I only have a decently good chance of rectifying that). T = time at expiration S[T] = spot price at expiration F[T] = futures price at expiration There is lots of pressure for S[T] to be equal to F[T] and for cash-settled contracts, they will be equal. For a bunch of reasons, including delivery options, disjoint between cash and futures markets (like grains right now), and others F[T] does not necessarily equal S[T]. Thus, your return, is F[T] - F[0] which ought to be close to S[T] - S[0] but can in some bizarre sense be arbitrarily different.
joy . FT is the future price at expiration i think this is useless info . for example if i enter to future contarct to sell s&p 500 for 1000 and then the spot price at maturity is 1200 so simply my gain is F0 - ST = 1000-1200 which is -200 , SO my qauestion why schweser calculate the investor gain F0 - FT we have to use STnot FT . FT is the future price of something we want to buy in the future not now . any one understand my confusing :(:( i get crazy related to this concept . i hope any one who have schweser look at this example and he will understood my confusing :(.
Read my post again. Forget about the S&P and think corn. If you invest in a futures contract, your return on the futures contract is F[T] - F[0] not S[T] - F[0]. There is just no gurarantee that the futures price at expiration is the same as the spot price at expiration because of all the delivery issues (and some market stuff). The exchange doesn’t know or care what the spot price of corn is in setting the settlement price or crediting your margin account (they actually probably do).
joy i would recommend for you to review ( forward market and contract ) at level 2 book say that at expiration the profit to long position of forward contract is that S(T) - F (0) . i hope that you understand now my confusing !!!
That’s a forward contract, not a futures contract (so obviously it’s true for a forward). If you don’t know about ten differences between futures contracts and forward contracts, you should review. Your profit and loss on a futures contract is about what is deposited in your margin account on a daily basis. If corn doesn’t work for you, how about US 10-year notes. What is S(T) on a 10-year note contract? The answer is that it’s probably 30 different things (depending on which note you deliver or get delivered) and there is the issue of accrued interest. However, the futures price is really well determined and on each day there is exactly one futures settlement price and based on that one price, you will be marked to market.
joy.Thank you very much i finally realized that i forgot a very important aspect of future cotract which is merked to market so the value to any future cotract is the current future price which is FT minus the last future contract when it was marked to market which is F0 . The funny thing that i remember all another differences between ( future and forward ) and forgot this specific aspect. Thank you very much again joy 
with my best regards :).