Bid-Ask spread of futures contracts

CFA Level III
#1

Schweser Book 3 page 168. what’s bid-ask spread of futures contract? Aren’t forward/futures contract costless? Thanks.

#2

sleepybird Wrote: ------------------------------------------------------- > Schweser Book 3 page 168. > > what’s bid-ask spread of futures contract? Aren’t > forward/futures contract costless? Thanks. forwards are costless but futures require you to post initial margin

#3

I think mpnoonan has misread the question as sleepybird is referring to the bid-ask spread, NOT the initial upfront/maintenance cost in the account for trading. In the world of tradig, bid is where sellers hit if he/she is to sell at market, and offer is where buyer will lift if he/she is to buy at the market. In illiquid market the spread can be wide and therefore high cost to trade. BID-ASK SPREAD Bloomberg Definition : Bid-Ask Spread.The difference between the best buying price and the best selling price for any given security.

#4

And of course there is bid-ask in futures contracts just like anything else.

#5

Thanks. I’m still confused. I am trying to relate this to my work. I have always wondered how our Treasury Department make money on FX forward contracts with one of my customers in my portfolio, since forward contracts are costless. They said they have built-in spreads. Anyone know what this means? Banks have to make money, otherwise there’s no point of entering forward contracts with customers. But how?

#6

Thanks. I’m still confused. I am trying to relate this to my work. I have always wondered how our Treasury Department make money on FX forward contracts with one of my customers in my portfolio, since forward contracts are costless. They said they have built-in spreads. Anyone know what this means? Banks have to make money, otherwise there’s no point of entering forward contracts with customers. But how? i.e. “Market” spread is CAD/USD 1.2479-1.2482… and the Treasury Department spread is 1.2476-1.2485… so the market would have bought 1 USD at a rate of $1.2479 CAD, whereas your Treasury department would have bought it cheaper at $1.2476 CAD per USD. This is what they mean by the spread differential, basically they widen it.

#7

sha_carsie Wrote: ------------------------------------------------------- > Thanks. I’m still confused. I am trying to relate > this to my work. I have always wondered how our > Treasury Department make money on FX forward > contracts with one of my customers in my > portfolio, since forward contracts are costless. > They said they have built-in spreads. Anyone know > what this means? Banks have to make money, > otherwise there’s no point of entering forward > contracts with customers. But how? > > > i.e. “Market” spread is CAD/USD 1.2479-1.2482… > and the Treasury Department spread is > 1.2476-1.2485… so the market would have bought 1 > USD at a rate of $1.2479 CAD, whereas your > Treasury department would have bought it cheaper > at $1.2476 CAD per USD. This is what they mean by > the spread differential, basically they widen it. Didn’t you just answer your own question? What’s the problem here?

#8

Thanks. Now it makes more sense.

#9

JoeyDVivre Wrote: ------------------------------------------------------ > > > Didn’t you just answer your own question? What’s > the problem here? Hit the wrong button and did a copy paste of the earlier post. You need to scroll 10 cms up… :slight_smile: Just being a brat!