Futures Pricing and P&L

How are futures prices determined by market participants?

Futures prices are determined by traders placing buy and sell orders on the exchange. These orders form the market’s bids and asks. When compatible orders match, a trade occurs.

Prices change as traders respond to supply and demand, economic reports, market news, and other information affecting the underlying asset.

What do bid, ask, last traded price, and bid-ask spread mean?

• Bid: The highest price a buyer is currently offering for a future. A sell order may fill at this price if sufficient liquidity is available.

• Ask: The lowest price a seller is currently accepting for a future. A buy order may fill at this price if sufficient liquidity is available.

• Last traded price: The price of the most recent completed futures trade. It may differ from the current bid or ask.

• Bid-ask spread: The difference between the bid and ask for a future. For example, a bid of 7,000.00 and an ask of 7,000.25 have a spread of 0.25 points.

Quotes may change before your order executes, and larger orders may fill at multiple prices.

Why might my order execute at a different price than the one displayed?

The displayed price may represent the most recent trade rather than the price currently available to buy or sell. Market movement and the quantity available at each price can also affect your execution price.

A market order prioritizes execution but does not guarantee a price. A limit order allows traders to set a maximum purchase price or minimum sale price, but execution is not guaranteed.

How do I calculate profit and loss on a futures trade?

Your profit or loss depends on the direction of your position, the price movement, the tick value, and the number of contracts.

• Long position: You gain when the price rises and lose when it falls.

• Short position: You gain when the price falls and lose when it rises.

P&L = Number of ticks moved × Tick value × Number of contracts

For example, if you hold 2 contracts with a $12.50 tick value, a 4-tick move in your favor produces a $100 gain. The same move against you produces a $100 loss, excluding fees.

What is the difference between unrealized and realized P&L?

Unrealized P&L generally refers to the gain or loss displayed for an open position. It changes as the market moves.

Realized P&L generally refers to the gain or loss from closing a position. Futures also settle gains and losses in cash daily, so account statements may distinguish daily settlement adjustments from the P&L displayed for a trade.

What is the daily settlement price, mark-to-market, and how does it affect my account?

The exchange determines a daily settlement price used to calculate gains and losses on open futures positions. These amounts are credited to or debited from your account through a process called mark-to-market. This occurs during the daily maintenance window for the applicable contract.

The settlement price may differ from the last traded price. Daily settlement does not close your position, but losses can reduce your account equity and affect your ability to meet margin requirements.

Is my potential loss limited to the margin required to open a position?

No. Margin is the amount required to support your position, not your maximum possible loss. Gains and losses are based on the full contract size, and losses can exceed the funds deposited.

How do fees affect my profit and loss?

Fees reduce your profit or increase your loss. For example, if your trade earns $100 before fees and total opening and closing fees are $4, your net profit is $96. If the trade loses $100 before fees, your net loss is $104.