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Made a total newb mistake. Held position open while contract expired...


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Made a total newb mistake. Held position open while contract expired...

  #11 (permalink)
New York, NY
 
Experience: Beginner
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I've never held to settlement but this question occurs on the Series 3. You'll pay a penalty for failure to deliver. On the upside, it's less of an issue for a financial contract like ES, but on the downside, it's generally more painful for the short party.

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  #12 (permalink)
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artemiso View Post
I've never held to settlement but this question occurs on the Series 3. You'll pay a penalty for failure to deliver. On the upside, it's less of an issue for a financial contract like ES, but on the downside, it's generally more painful for the short party.

How much would the penalty be?

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  #13 (permalink)
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artemiso View Post
I've never held to settlement but this question occurs on the Series 3. You'll pay a penalty for failure to deliver. On the upside, it's less of an issue for a financial contract like ES, but on the downside, it's generally more painful for the short party.

I received my account statement via email a few hours ago. I didn't see a penalty listed so I might have lucked out.

I also lucked out on the settlement price, which ended up being 13 points lower than it was when the contract expired I've attached a copy of the "delivery and cash settlements" portion of the statement, if anyone's curious...

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Last edited by AVLtrader; December 22nd, 2018 at 05:52 AM.
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  #14 (permalink)
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Posts: 146 since Apr 2018
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This is my fear and probably the main reason I've not started trading futures.

It's the fear that you may be required to either take delivery of or supply a commodity - and this includes currency futures which are deliverable!

What happens if you end up in this situation?

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  #15 (permalink)
Legendary Market Wizard
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kazz View Post
This is my fear and probably the main reason I've not started trading futures.

It's the fear that you may be required to either take delivery of or supply a commodity - and this includes currency futures which are deliverable!

What happens if you end up in this situation?

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Most brokers will never let this happen to you. Tradestation, for example, will auto liquidate and close your position, although they charge you $50 for doing so, and they usually call you and chew you out a bit.

It is a bit crazy, because some markets are cash settled (and you can hold to expiration, like OP did), and others are deliverable and you have to be out before First Notice Day (or Last Trading Day, which sometimes comes before First Notice Day).

Here is a nice calendar provided by Carley Garner to help you know dates.

Ultimately it is your responsibility to adhere to the exchange rules.

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Made a total newb mistake. Held position open while contract expired...-futures-options-expiration-2019.pdf  
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  #16 (permalink)
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kevinkdog View Post
Most brokers will never let this happen to you. Tradestation, for example, will auto liquidate and close your position, although they charge you $50 for doing so, and they usually call you and chew you out a bit.

It is a bit crazy, because some markets are cash settled (and you can hold to expiration, like OP did), and others are deliverable and you have to be out before First Notice Day (or Last Trading Day, which sometimes comes before First Notice Day).

Here is a nice calendar provided by Carley Garner to help you know dates.

Ultimately it is your responsibility to adhere to the exchange rules.

Thanks, this is very good. I totally get your point about us, the traders, being liable for delivery on settlement.

I think many newbies, and l was in that camp too, don't realise that these are legally binding contracts we are entering into.

Therefore, if you sell someone s commodity and are contracted to deliver it at the settlement date then that is a legal obligation.

It can be easy, when trading, to view our buys and sells as abstract electronic transactions but they have real physical implications.

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  #17 (permalink)
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You should hold to last minute when the volume clearly moved to the next month of trading, whether you trade cash-settled contract or a physical one. In the physical market, like CL/NG, I have seen positions going upside down (profit to loss) because of the lack of liquidity and.

Matt Z
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  #18 (permalink)
Market Chamois
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I’m taking this opportunity to respond to your first post here at FIO since the Intro thread is not the place for such things. I like what you said.

Setting up rules to govern everything we do as traders is, in part, as close as we can ever get to a Holy Grail in this business. And of course set up ahead of time and accomplished without error.

The market will do whatever it does and there is nothing we can do about it. Following your rules is your only bastion and mistakes are only defined as something that happens other than what are rules say can happen...ie you broke rules.

Strict entry, exit, size and edge rules exquisitely adherent and you can’t make a mistake.

Most (myself included but at the tail end) are obsessed with acquiring “THE EDGE” when in reality a very modest edge executed perfectly will produce a reliable income. Executed perfectly means, among other things, after whatever number of losers in a row the next appearance of your edge is carried out exactly as planned.

Ron




Scomax View Post
Thanks Mike, glad to be aboard. I've been trading for a while in futures, forex, and stock options. Had a lot of good trades and a lot of bad trades. Made money and lost money, lost more than I care to admit. I hope to work on myself to improve my results. It seems at times that I am my own worse enemy. With some experience I have learned that we must be comfortable with being wrong the majority of the time. By that I mean the times you have a winning trade you say to yourself that your position should have been larger or you took profits too early and left $$$ on the table or on the other side of the coin when you have a losing trade you tell yourself you should have had a smaller position (lots, shares, contracts, etc.) or your stop was too wide. Or I should have entered the trade earlier or waited a bit longer before entering. You will almost always be wrong somewhere in your trading so getting comfortable with being wrong and making money at the same time is where we want to be. To be comfortable with being wrong is not as easy as it sounds. Self sabotage is our enemy. I hope to learn plenty here. Thanks to all.


Scomax View Post
Call broker and tell him to do whatever it takes to liquidate. Never had this happen to me so I'm assuming the broker knows what to do.Good luck!


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  #19 (permalink)
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Re: Financial Settlement
Going to settlement is not failure to deliver, does not have a penalty and is done frequently. (Today being NG expiration I had HH and NN positions on NYMEX and Henry Hub positions on ICE go to financial settlement). Different contracts have different rules. Some contracts financial settlement incurs no exchange fees, other contracts the fee will be similar to a trade.

Re: Physical Delivery
As already stated this should never happen unintentionally. Most brokers will liquidate you themselves to prevent this happening. In my experience (energy markets) physical settlement is nearly always sub-optimal even for the big boys with the ability to handle delivery. One of the first things that happens is that the exchange will increase margin requirements for both buyer and seller to full notional value of the contract. For this reason alone, anybody intentionally going off the board with a position will normally ADP ("Alternative Delivery Procedure") the position to a bilateral physical, no longer subject to exchange margins.

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  #20 (permalink)
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matthew28 View Post
Wow. Let us know what happens.
There is always that warning when trading commodities, maybe apocryphal these days, about not holding in to expiration or you'll find a guy on your drive asking you where you want the 5,000 bushels of corn unloaded then asking for the cheque, or a letter arrives wondering when you will be collecting your 1,000 barrels of crude.
I wonder if a short is different to a long position and whether derivatives rather than commodities makes a difference.
Good luck.

That sounds like it would require "infrastructure"... AND some explaining to the wife !

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