Financial Markets and products- Future Contract

muthuthere
Posts: 7
Joined: Tue Sep 29, 2015 8:47 am

Financial Markets and products- Future Contract

Postby muthuthere » Tue Jun 21, 2016 3:13 pm

What is meant by offset position in Future contract ?..please with example..

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: Financial Markets and products- Future Contract

Postby edupristine » Wed Jun 22, 2016 5:44 am

Hi Muthu

By offsetting a futures contract, the trader cancels any obligation he has to make or take delivery of the underlying commodity. The difference between the price of the futures contract when the trade was initiated and the price when it is offset is the net gain or loss on the trade.

Example: John was long 1 contract of Nikkei225 Futures expiring in April. After holding the position for a few days, John decided to close out the position as he has already made some good profit over those few days from daily settlement. John gave the order to offset the position to his futures broker. His broker then goes into the futures market and offers to go short 1 contract of April Nikkei225 futures contract. Once the order fills, John would in effect be long 1 contract and short 1 contract of Nikkei225 futures which the clearinghouse would consider as having no further exposure in the position.

The opposite is the same for offsetting a short futures contract.

Assuming John was short 1 contract of Nikkei225 Futures expiring in April. Giving the order to offset the futures position would make his futures broker go into the future market to make an offer to go long 1 contract of Nikkei225 futures expiring in April. Once filled, John would once again have both a long and a short contract of Nikkei225 which is regarded as no further exposure.


Return to “FRM Part I”



cron

Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.