I am trying to figure out how many futures contracts to buy to achieve 3x leverage. For instance, if the underlying futures contract goes from $100 to $101, I want a profit of 3%. Or if it goes from $100 to $103, that would give me a profit of 9%. How do I calculate how many contracts to buy?
Since all futures have different size contracts, look to the notional value. For example, the ES future right now is 3985 and the contract size is $50/point or 3985*50= $199,250. Compare that with your ETF at 3X.
Are you leveraging your "trading account" or your total trading capital?? Whenever you employ leverage, whether it be multiple "x" of an ETF, futures contract, or margin exposure... you should consider the "notional amount at risk vs. your total investing capital/net worth".
Futures are a leveraged product already but you can't change the amount of leverage. If you buy more contracts you'll need more funds (margin) to hold the additional contracts which keeps the ROI the same as your original position. Example: 1 contract ES = $12,000 margin requirement (overnight hold)(brokers have different margins) 1 pt. move = $50 $50/$12,000 = .42% ROI 2 contracts ES = $24,000 margin requirement 1 pt. move = $100 $100/$24,000 = .42% ROI Your ROI can't be increased to 3% with a 1 pt. move regardless of the number of contracts. ***IMO, using margin requirement is the better way to calculate rather than using the full contract dollar size as traders don't fund their account with the full size so the investment size is the margin required to hold the position.
Good Lord. How dare you mention the actual exposure of notational value here on ET. Ignorance is bliss.
Very simple, if the price goes from 100 to 101 then the increase is 1%.if you invested a notional of your entire account you gained 1%. If you want 3% you need to be long 3 times your account balance. Divide that notional by the notional per contract of whatever you are trading and you get the number contracts.
That only addressed part of his question. Given your example and an assumed account balance of 100k OP would have to buy roughly 6 contracts. (199250/100000*3)