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 mid 2004.
Example 1:
Two weeks ago, a trader purchased 3 August live cattle futures at a price of 85.25 cents/pound. The market price of August live cattle futures is now 87.85 cents/pound. Since the trader bought futures and the price went up, he has an unrealized profit on his futures position of (not including commission and other fees which are also deducted from the account):
GAIN = (87.85 cts/lb - 85.25 cts/lb) x (40,000 lbs per contract) x (3 contracts) = $3,120
The trader can elect to realize this profit by selling live cattle futures and hence, closing his position. However, there is no guarantee that the trader will be able to sell futures at 87.85 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 sold 2 September British pound currency futures at a price of $1.8025 per British pound. The market price of September British pound futures is now $1.8415 per British pound. Since the trader sold futures and the price went up, he has an unrealized loss on his futures position of (not including commission and other fees which are also deducted from the account):
LOSS = ($1.8415 - $1.8025) x (62,500 British pounds per contract) x (2 contracts) = $4,875
The trader can elect to cap this loss by buying British pound futures and hence, closing his position. However, there is no guarantee that the trader will be able to buy futures at $1.8415 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 August Nymex (Comex) gold futures at a price of $407.90 per ounce. The market price of August gold futures is now $397.50 per ounce. Since the trader sold futures and the price went down, he has an unrealized profit on his futures position of (not including commission and other fees which are also deducted from the account):
GAIN = ($407.90 - $397.50) x (100 troy ounces per contract) x (4 contracts) = $4,160
The trader can elect to realize this profit by buying gold futures and hence, closing his position. However, there is no guarantee that the trader will be able to buy futures at $397.50 per ounce 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.