What you will learn
- Contract lifecycle
- Settlement and delivery
- Basis
- Roll construction
Contract lifecycle
A futures contract defines an underlying reference, multiplier, expiry and settlement process. Read the exact contract rather than treating a continuous chart as the instrument. Quantity and price units determine the cash exposure of each move.
Settlement and delivery
Futures exposure is marked under the applicable clearing and account arrangements. Adverse movement can create funding demands before a position is closed. An eventual favorable outcome does not eliminate the need to meet interim obligations.
Basis
Expiry can involve cash settlement or delivery-related procedures depending on the contract. Notice and last-trading dates can differ. A learner should identify the relevant dates and close or roll under a documented plan rather than discover obligations at expiry.
Roll construction
Basis is a defined difference between related prices, often futures and spot. State the sign convention, timestamps and instruments. A hedge can retain basis risk when the hedged exposure and contract do not move identically.
Worked example
A contract with multiplier ten moves five price units against two contracts. The linear gross loss is 100. A small initial margin deposit does not change this multiplication.
Try it yourself
Calculate the loss for three contracts, multiplier twenty and an adverse move of two. Identify two additional cash-flow considerations.
Show the worked solution
The gross loss is 120. Fees and margin/funding requirements are relevant additional considerations; currency conversion and execution can also matter. The calculation alone does not specify the timing of required payments.
Apply this to your course project
Model a futures roll and option payoff under stressed scenarios.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.