futures capability

[mli2001]

Hi Mark

Any plan to incorporate futures? the calculations are quite straight forward:

P/L = difference in prices x number of contracts x multiplier

Market value = daily change in P/L

The key is to ignore the notional value when calculating the portfolio NAV. The impact on the NAV is just the daily change in futures P/L.

Thanks

[Mark]

Hi mli2001,

I still can't say I understand how futures are valued. I understand what a future is, but they are still not clear to me.

The concept of price * shares = value is deeply ingrained in Fund Manager. Can you direct me to some reading or give me an example of how you'd see this working in FM? What would need to be added/changed?

[mli2001]

Hi Mark

Unfortunately I don't have the exact literature. However you may find something useful in IBKR's Portfolio Analyst reports as they have GIPS compliant reports that covers almost all listed asset classes (https://www.portfolioanalyst.com/en/support.php).

or, in details:
https://www.interactivebrokers.com/en/? ... ements.php

The key difference in futures is the multiplier, ie. value = quantity x price x multiplier. unlike stocks which P/L is unrealized until sold, futures P/L is realized daily, and settled into a "virtual" margin account. futures market value is always zero when initiated, and the closeout/ending market value is really just the P/L from the cost.

Could it be easier to just set all the stock multiplier as 1 (an additional field for stocks), and leave the field as a user input for futures? I may be just naive as this is probabaly easier said than done.

Hope that helps.
Thanks

[Mark]

Hi mli2001,

Thanks for the help. If it was just an issue of adding a multiplier, it seems that could be embedded in the price. It also seems there is a difference in calculating the market value. I'll have to do some reading, to understand better...

[mli2001]

Thanks Mark.

Once you set up the multiplier, they key is not to add the notional value to the portfolio NAV. Instead, you only add/subtract the P/L to the portfolio NAV. This is really the main difference between futures and stocks/options.

[Mark]

Hi mli2001,

Okay, thanks for the help. That does significantly complicate things though.

[Arrow]

Thanks Mark.

Once you set up the multiplier, they key is not to add the notional value to the portfolio NAV. Instead, you only add/subtract the P/L to the portfolio NAV. This is really the main difference between futures and stocks/options.

I do agree but there is another issue that must be kept in mind.

Each time you take a position in futures buying or selling a contract you must deposit the
"initial margin" that is charged by your bank/broker either in a fixed sum or in a percentage of the initial contract value.
Something similar to what, i suppose, happens in trading stocks on margin but with futures the initial margin remains untoucheable as long as you hold a position.


If you trade intraday your initial margin will be charged when you open the position and freed the same day, so at the end of the day your nav will change only for the difference between your buy and sell price of the future x multiplier + commissions.
In this case things are simpler and the initial margin is "transparent" and one could omit registering it , though you still have to have that money deposited temporarily otherwise you cannot open the contract position long or short in futures.

On the other side if you open a position in futures ( long or short) and keep it open for multiple days your "initial margin" will be kept by the bank/broker as a warranty so that you will be able to meet your " variation margins": i.e. each day you will charged or awarded in your account the difference in value of the future contract, that is calculated as the difference between the settlement price x multiplier of the day in regard to the previous day's settlement price x multiplier.

Only when you close the contract your initial margin will be given back to you plus or minus the difference between your closing price x multiplier and the previous' day settlement price x multiplier.

It's a long time since I've studied and stopped trading futures but if my memory is not rusted
that's how they work.

So if I'm not daydreaming about a possible solution that would be to allow registering the outflow of the initial margin ( fixed sum or percentage of the opening position price-value ( it doesn't matter if long or short)) and then register prices as difference between the opening price of the future x-multilier of the position and the current price-x-multiplier of the future.
In short the problem is that one must reference 2 items A. the future price ; B. the difference between the opening position future price x multiplier and the current future price x multiplier in order to achieve the nav of the contract position.
Of course one must have the choice to buy or sell a contract and, though more cumbersome, contracts on the same future with different prices i think it would easier to treat them separately

[Mark]

Hi Arrow,

Thanks a lot for the help explaining how futures work, that does help.