Malting Barley Futures: Technical question on Marginsþ

Discussion in 'Ag Futures' started by OTC Nic, Feb 15, 2013.

  1. OTC Nic

    OTC Nic

    Hello,

    I'm a student and I'm trying to understand some features of futures contracts.

    However, I just discovered the existence of "tick size", "Daily Price Limit", "Underlying Price Scan Range" and I'm a bit confused. Hence, I'm asking for some enlightenment from professionals. I'm writing my reasoning (which might be wrong), could you tell me if I'm right ? Note that I intentionally leave aside the transaction costs in order to ease the calculations.

    If we check the "CharacteristcsMBF.png" doc, we see that 1 contract represents 50 Tons. The tick size is 12,5€ for the 50 Tons.
    http://imgur.com/m35Fhh9


    http://imgur.com/DOqjqeg
    Now, if we check "MaltingBarleyFutures.png" doc. I want (for instance) to buy MAY 13 futures.
    I want 2 contracts. I'm happy because 20 contracts are available ! (in Ask Size) So I can buy my 2 contracts which value is under the Ask Column, so 241,00€.
    It means that I have to pay 2(contracts) * 241€(price) * 50 (because that price is for 1 Unit) = 24.100,00 € , right ?

    I'm pretty sure that my reasoning above is just but can you please confirm? However, the below reasoning might be wrong.

    For the margins:

    The Settlement Price is used to assess the margins. it's value is 243,75€/unit. (*50€/contract)
    Do I use the "open" value to assess the difference ? Or is that settlement value for today used in valuating tomorrow's margin?

    I mean, if today settlement value is 243,75 and tomorrow it's 243,95, then my accounts at the Clearing House will be increased (or decreased?) ? (I'm Buying)

    And the variation will be equal to ? change of .20 so, 20 ticks. ==> 20* 12,5€(tick size) ? = 250,00€ ?

    http://imgur.com/y8R6UUa
    If you now check the "MarginsMBF.png", we know that each contract needs an Initial Margin(IM) of 1.250,00€
    The UPSR represents the "Underlying Price Scan Range" and is the maximum price movement reasonable likely to occur for the underlying (in 1 trading day?) Basically, does it give the IM value ? 25 (UPSR)* 50 (unit/tons) = 1.250,00 ? (if we had a contract on 60 tons then we should've had an IM of 25*60=1.500,00€ ??)

    However, the IM won't be depleted in 1 day because there is a cap on the max. changes. We have a daily price limit of 20. This blocks the daily variation in margins to 20*50 = 1.000,00€ ? If we had 15 instead, this would block the variations to max. 750,00€ ?? it also means that our daily gains are capped at 750€ max./day/contract?

    Our 250,00€(1 contract) gains will be added to our security layer at the CCP.

    Assuming I make a loss of 500€/contract, and that the security threshold is set at 1.000,00€, then I have to give the CCP 250,00€ to remain at the good level ? (1.250 IM - 500 = 750 in CCP accounts and I need 1.000,00 So I give 250,00)

    Could you tell me if I'm right or wrong in the reasoning ?

    Thank you very, very much !

    Yours Faithfully,
     
  2. TraDaToR

    TraDaToR

    I don't really trade LIFFE or Matif Commodities, but it seems you got it all right.

    Generally they use settlement to calculate maintenance margin, excess capital... Margin depends most of the time on a measure of the average daily change or range of the product, here your UPSC.

    Beware of daily price limits, when a product is limit up or down in the US, the options continue to trade at a much higher or lower synthetic value, and the calculation for your margin can change...