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The cost of buying/selling futures
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The cost of buying/selling futures

  #11 (permalink)
Market Wizard
Germany
 
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trading654 View Post
... Is this always how futures trading works in practice - namely, that you put zero (nothing) up front and subsequently watch the account fluctuate?

Is that all you understood by reading what margin is so that you repeat that nonsense?
What else is a margin than having to put up x$ up front?

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  #12 (permalink)
Elite Member
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trading654 View Post
My friends, thanks for all the replies.

You have basically confirmed what I was saying. It costs zero to enter into a futures contract, and all that happens after that is that I lose or make money on my account based on subsequent price movements. The margin is there in case losses occur. When I say "zero" I'm of course ignoring commissions, fees, and such.

This is exactly what I thought, and you basically confirmed what I said.

So, what I'm now asking is basically: Is this always how futures trading works in practice - namely, that you put zero (nothing) up front and subsequently watch the account fluctuate?

Or are there any futures markets out there (that I'm currently not aware of) where I put up something more than zero up front? Does such a thing ever happen in futures trading?

That's all I'm asking.


Please look up the meaning of leverage. This is no different than borrowing $100,000 for whatever purpose you are entering into the contract for.

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  #13 (permalink)
Trading for Profit
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You might change your tune when you get a margin call sometime in the near future.

You're trading a massive notional value on a small deposit. A $400 intraday margin per contract on the mini S&P 500 is only 8 points worth of movement. "Putting nothing up and watching the account fluctuate" is a terrible way to look at it.

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  #14 (permalink)
Market Wizard
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trading654 View Post
My friends, thanks for all the replies.

You have basically confirmed what I was saying. It costs zero to enter into a futures contract, and all that happens after that is that I lose or make money on my account based on subsequent price movements. The margin is there in case losses occur. When I say "zero" I'm of course ignoring commissions, fees, and such.

This is exactly what I thought, and you basically confirmed what I said.

So, what I'm now asking is basically: Is this always how futures trading works in practice - namely, that you put zero (nothing) up front and subsequently watch the account fluctuate?

Or are there any futures markets out there (that I'm currently not aware of) where I put up something more than zero up front? Does such a thing ever happen in futures trading?

That's all I'm asking.


I suppose we just have an odd case of semantics here.

You don't, and can't, buy a futures contract. It is not an asset. If by "cost" you mean, a price you pay to own an asset, no, there is no asset, and you don't buy one, and so there is nothing here that has a "cost," in the sense of money paid to own something. You mentioned Apple shares before. There, you actually own Apple, and you then can profit or lose based on the fluctuations of the stock, if you sell it. This is not a situation that is anything at all like that, and should it not be thought of in a stock-like way. You are just making an agreement, a contract. You are not buying something.

However, you don't get to enter into this contract without putting up the margin. Is that "zero (nothing)?" Well, the reason that this has gotten to be an involved discussion is that you do "put up" something (not nothing), and that is margin. If you only want "putting up" to refer to a price you pay to own an asset, then no, there is no such transaction here -- because you never do own anything, unless you actually take or make delivery, fulfilling the contract. Then some money exchanges hands along with a real asset. The contract is not an asset, and you do not buy it, so yeah, in this sense you don't pay for it either.

These facts are pretty simple. We're going around and around for no reason. Just call it what you want, and lets move on down the road, here.

Finally: yes, this is how futures work. You always have to put up some margin, and you never own anything when you do, because a futures contract is not an asset (as I may have said once already .) So you aren't buying something that has to be paid for. And there's no other money involved besides the margin. I suggest to not think about this the way one would think about stocks, and it gets much simpler.

No, there are no futures contracts that do not work this way.

How many angels can dance on the head of a pin? (Answer: as many as want to. Which is about as useful as this discussion.)

Bob.

Edit: I don't want this to be snarky, just clear. I can see how thinking of futures in the same terms as the stock market could lead to some confusion. However, they are not at all similar. I hope the question has been cleared up for you.


Last edited by bobwest; October 26th, 2015 at 12:42 PM.
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