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Made a total newb mistake. Held position open while contract expired...
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...
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.
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
Optimus Futures
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
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Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
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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
...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
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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.
I've attached a copy of the "delivery and cash settlements" portion of the statement, if anyone's curious...
