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How to Trade Eurodollar Spreads

Arguably the most liquid futures contract in the world, the Eurodollar futures contract owes its success to a very large user base and an underlying market (3-mo LIBOR money market and forward rate agreement markets) that is staggering in size. That large user base consists of traders, asset liability managers, interest rate hedgers and spread traders.

This module will cover the basic spread strategies used in Eurodollar futures including calendar or yield curve spreads.

Review of the Yield Curve

The yield curve is simply a plot of yield versus maturity. Generally, as maturities increase, yields also increase due to the added risk of holding a fixed income security over a longer period.

For example, 3-month Treasury Bills currently yield .60% while the 2-Year Treasury Note yields 1.25%, the 5-Year Note yields 2.07 and the 10-Year Note yields 2.54%. If you plot yield versus maturity, you get a curve known as the yield curve.

You could also plot 3-month LIBOR, 6-month LIBOR, etc. and generate a similar yield curve across the 40 expirations of Eurodollar futures.

Changes in the Yield Curve

Sometimes yields rise at a greater pace in certain areas of the curve than others. For example, short-term rates might rise faster than long-term rates, contributing to a flattening of the yield curve. Or long-term rates might go up faster than short-term rates, contributing to a steepening of the yield curve.

Traders can take advantage of changes in the yield curve using spread strategies in Eurodollar futures. Spreading in Eurodollar futures is one of the most popular strategies among Eurodollar traders and involves the simultaneous purchase and sale of futures contracts of different maturities. The hope is your profitable leg of the spread makes more than the unprofitable leg loses. Spreading can reduce risk because you are simultaneously long and short. But remember, not all spread trades are profitable. They may reduce risk but they do not eliminate it.

Examples

Calendar, or Yield Curve, spreads are one of the most common Eurodollar trades at CME Group. Since the value of one basis point is $25 in all the quarterly Eurodollar futures, the ratios for Yield curve spreads are 1:1.

Steepening Yield Curve Strategy: Buy the shorter maturity Eurodollar future; sell the longer maturity Eurodollar future

Flattening Yield Curve Strategy: Sell the shorter maturity Eurodollar future; buy the longer maturity Eurodollar future.

Remember: Prices move inversely with yields in Eurodollar futures.

Choosing a Spread Strategy

Choose a Steepening yield curve strategy when the market anticipates long-term interest rates will rise faster than short-term rates or long-term rates remain steady while short-term rates fall. The rationale: a perception is that the economy remains weak and the Federal Reserve is expected to do nothing or to lower interest rates. When the Fed does this, it usually affects short-term rates more.

Choose a flattening yield curve strategy when the market anticipates short-term interest rates will rise faster than longer-term interest rates. The rationale: economic news and events surprise market and economy is expected to strengthen further and the Federal Reserve is expected to raise short-term interest rates to head off potential rise in inflation.

Example using Eurodollar futures:

Steepening Yield Curve Strategy

Buy the shorter maturity Eurodollar future and sell the longer maturity Eurodollar Future

Date	Buy Mar 2017 Eurodollar IMM Price	Sell Mar ‘2020 Spread Eurodollar IMM Price
01/25/17	98.90	97.56	134 b.p.
03/30/17	98.06	96.20	186 b.p. (+52)

Date

Buy Mar 2017

Eurodollar

IMM Price

Sell Mar ‘2020 Spread

Eurodollar

IMM Price

01/25/17

98.90

97.56

134 b.p.

03/30/17

98.06

96.20

186 b.p. (+52)

The trader in the example above bought the spread in January at a difference of 134 basis points from the March 2017 and March 2020 contracts. He wants the spread to widen by either longer rates going up more than shorter rates or shorter rates rallying relative to longer term rates.

By March of 2017, the spread widened to 186 basis points a gain of 52 basis points. To calculate his profit, each basis point = $25.00 in Eurodollar futures. Hence: 52 bps X $25.00/bp equates to a profit of $1,300.00.

There are many more types of futures spreads in Eurodollars including butterfly spreads, packs and bundles.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Metals Educational Video & Link Home Page

Metals Intramarket spreads

Intra market spreads, also known as calendar or time spreads, are where a trader opens a long or short position in one contract month and then opens an opposite position in another contract month in the same futures market on the same exchange.

For example, long Copper futures May and short Copper futures August on COMEX. Essentially they allow traders to express a view on the expected value of assets at different points in time.

Forward Curve Structure and Carries

Traders can express a view about the structure of a metals forward curve. If you expect nearby contract to rise in value relative to the back end of the curve, you can buy that nearby contract and take an opposite position in a long-dated month to benefit from the change in the relationship and the forward curve. Carries may be used to manage futures potions hedges against a change in the underlying physical market being hedged.

Example

If you planned to buy a physical metal for future delivery in November, you would be worried about price changes from now until delivery. In order to hedge this price risk, you would enter into a long futures contract for the same product, also with a delivery date of November. But what happens if the delivery date for your physical metal changes to December?

In order to maintain the hedge, you will need to move the futures position to December. To do this you would sell the November versus December spread. In other words, you would sell the November contract and buy the December contract. The net position of would be a long December futures contract, matching the new physical metal delivery date.

Less Volatility than Outright Futures

Intra market spreads offer a trader exposure to the price of a metal, but with reduced volatility because the time spread tracks changes in relationship between the two contracts, rather than the price of the outright futures contract. The risk is the change in the forward curve impacts the two open positions at different rates, but the difference between the two open positions will be less than the outright value and thus such spreads are less volatile.

Reduced Margin Requirements

If a trader expresses a view on the relative value of metals futures by trading an intra market spread, they may see reduced initial margin requirements. Initial margins may be lower for spreads because of the reduced volatility. For example, the maintenance margin required for one lot long Copper futures Feb versus short Copper futures August on COMEX might be $200 per lot. The outright one lot long Copper futures Feb could be around $3,100 per lot.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Metals Educational Video & Link Home Page

Understanding Futures Spreads

Spreading, a trade in which you simultaneously buy one futures contract and sell another, is a popular strategy among many different asset classes.

One reason they are popular is because they can be less risky when compared to outright futures. And because they are less risky, they also tend to have lower margin requirements.

In this lesson, we will look at the various types of spread trades, including the features that make them valuable strategies for both hedgers and speculators alike.

Types of Spreads

Spreads can be categorized in three ways: intramarket spreads, intermarket spreads, and Commodity Product spreads.

Participants who use these strategies are more concerned with the relationship between the legs of the spread than the actual prices or direction of the market.

Intramarket Spreads

Intramarket spreads, also referred to as calendar spreads, involve buying a futures contract in one month while simultaneously selling the same contract in a different month.

One example would be the buying the March 2018 Eurodollar futures contract and selling the March 2021 Eurodollar futures contract.

Calendar spread traders are primarily focused on changes in the relationship between the two contract months; the goal of this strategy is to take advantage of those changes. In most cases, there will be a loss in one leg of the spread, but a profit in the other leg. If the calendar spread is successful, the gain in the profitable leg will outweigh the loss in the losing leg.

Calendar spreads are also used by hedgers to roll a futures position from one month to the next.

Intermarket Spreads

Intermarket spreads involve simultaneously buying and selling two different, but related, futures with the same contract month in order to trade on the relationship between the two products.

For example, the Gold-Silver Ratio spread is a tool for trading on the relationship between Gold and Silver futures prices. This spread can be viewed as an indicator of the health of the global macro economy.

Market participants can express their views on the economy or the relationship between these two products with this spread.

Commodity Product Spreads

Commodity product spreads involve buying and selling futures contracts that are related in the processing of raw commodities. For example, the Soybean Crush involves buying Soybean futures and selling Soybean Meal and Soybean Oil futures.

The participants in this spread are able to simulate the financial aspects of soybean processing, that is, buying soybeans, crushing them and selling the resulting soymeal and soybean oil. The Soybean Crush spread allows processors to hedge their price risks, while traders will look at the spread to capitalize on potential profit opportunities.

Spread Margins

As previously mentioned, one of the attractions of spread trading is the relatively lower risk versus outright futures positions, and the subsequent lower margins. See how this works with the Soybean-Corn spread.

Assume, the outright margin for Soybean futures is at $3,000 and the outright margin for Corn futures is $1,500.

Rather than posting $4,500 to trade a spread on these two contracts, a trader may receive a 75% margin credit; in other words, the initial margin would be $1,125, which reflects the lower risk in spreading the two contracts as opposed to trading each of them outright.

Conclusion

There are many spread strategies that allow market participants to manage risk and capitalize on potential opportunities.

You can learn more about product-specific spreads in other lessons in this course.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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About Open Interest

Open interest is the total number of futures contracts held by market participants at the end of the trading day. It is used as an indicator to determine market sentiment and the strength behind price trends.

Unlike the total issued shares of a company, which typically remain constant, the number of outstanding futures contracts varies from day to day.

Open interest is calculated by adding all the contracts from opened trades and subtracting the contracts when a trade is closed.

For example, Sharon, Cynthia and Kurt are trading the same futures contract. If Sharon buys one contract to enter a long trade, open interest increases by one. Cynthia also goes long and buys six contracts, thereby increasing open interest to seven. If Kurt decides to short the market and sells three contracts, open interest again increases to 10.

Open interest would remain at 10 until the traders exit their positions, at which point open interest declines. For example, open interest declines to nine when Sharon sells one contract. When Kurt decides to exit his position, he buys back his three contracts and brings open interest down to six. At this point, until Cynthia decides to sell her six contracts, open interest will remain constant at six.

Open interest and volume are related concepts, one key difference is that volume counts all contracts that have been traded, while open interest is a total of contracts that remain open in the market.

Traders can think of open interest as the cash flowing to the market. As open interest increases, more money is moving into the futures contract and as open interest declines money is moving out of the futures contract.

CME Group products with the largest open interest include Eurodollars, Treasuries and stock index futures.

Open Interest Analysis

Analysts typically use open interest to confirm the strength of a trend. Increasing open interest is typically a confirmation of the trend whereas decreasing open interest can be a signal that the trend is losing strength.

The idea is that traders are supporting the trend by entering the market that increases the open interest. As traders lose faith in the trend they exit the market and open interest declines.

Open interest data is published at the end of each day. Additionally, every Friday afternoon, the CFTC publishes a report called the Commitment of Traders.

This report details open interest from different classes of market participants and whether they are holding a long or short position. This breakdown offers valuable insights into what producers, merchants, processors, users, swap dealers and money managers are doing in the market for a futures contract.

Open interest is one variable that many futures traders use in their analysis of the markets used in conjunction with other analysis to support trade decisions. Large changes in open interest can be an indicator when certain participants are entering or leaving the market and may give clues to market direction.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Market Regulation: Meet the Team

CME Group’s Market Regulation Department works to protect the market integrity of all four of its Exchanges – CME, CBOT, NYMEX, and COMEX by:

Applying and enforcing rules that protect all market participants
Taking proactive approaches to mitigate risks and prevent damage to the marketplace.
Ensuring that each Exchange satisfies its obligations under Federal regulations as designated contract markets
And holding violators accountable for their actions.

Meet the Team!

The Market Regulation department is made up several teams.

Market Surveillance

The Market Surveillance team is responsible for detecting and preventing market manipulation by monitoring the price relationships between the futures markets and the underlying physical markets and reviewing positions held by participants to ensure fair and orderly trading of Exchange contracts.

Investigations

The Investigations team is responsible for detecting and investigating potential trade practice violations, such as:

wash trades
illegal noncompetitive trades
block trade infractions
money passes
other abusive or disruptive trading practices like spoofing

This team also conducts data analysis, collects and reviews documentary evidence, and, where necessary, interviews market participants to gather information relevant to the team’s review of potential trade practice violations.

Data Investigations

The Data Investigations team reviews anomalies in audit trail information submitted to the exchange by trading and clearing firms. This team works to ensure the accuracy of audit trail data, which is key to trade reconstruction, as well as the detection, investigation, and prevention of customer and market abuses.

Enforcement

The Enforcement Team works to resolve violations through CME Group’s disciplinary process. This team will often take initial steps to resolve such matters through a settlement. If a settlement cannot be reached, the Enforcement team will present its case to the Probable Cause Committee for the issuance of charges and will prosecute the charges issued against the alleged violator before the Business Conduct Committee. The Enforcement Team also manages the Exchange arbitration program.

Systems

The Systems team develops and manages the proprietary systems that support the Market Regulation teams and administers internal training for Market Regulation employees. This team also works closely with the business teams at CME Group to provide regulatory input for new exchange technology, rules, and products.

Regulatory Outreach

The Regulatory Outreach team provides market participants with the information and resources necessary to meet their compliance needs, and serves as a valuable resource in helping to prevent rule violations from the outset. This team has representatives in Chicago, London and Singapore.

Each team within the Market Regulation group serves a unique function in guarding the integrity of the financial marketplace, with a strong degree of collaboration among the various teams. While the Market Regulation Department is ultimately responsible for protecting the integrity of the markets, it also serves as a key resource to help answer questions on trade practice and surveillance rules.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Controlling Risk

Let’s take a look at how controlling risk with the 2% Rule works vs. an even tighter 1% Rule. Table 3 shows what your account would look like after a five-in-a-row losing streak—something an active trader could experience in a single day. Note how the fixed percentage rule reduces the size of each succeeding trade, which slows your account’s decay when you experience a losing streak.

2% Rule vs. 1% Rule in a Five-Trade Losing Streak (dollars, exclusive of commissions)
Starting Amount	2% at Risk	Ending Amount	1% at Risk	Ending Amount
$50,000	$1,000	$49,000	$500	$49,500
$49,000 / $49,500	$980	$48,020	$495	$49,005
$48,020 / $49,005	$960	$47,060	$490	$48,515
$47,060 / $48,515	$940	$46,120	$485	$48,030
$46,120 / $48,030	$922	$45,198	$480	$47,550

Making Up for Trading Losses

Account losses are inevitable when you are trading futures. And, when you encounter a losing streak, you have to build back your earnings to get back where you were when you started. Mathematically, the amount you have to gain will be larger than the amount you lost. Table 4 shows in percentage terms the gain you must recover to make up for a similar loss.

Making Up for Trading Losses (percent)
Loss	Recovery Gain
10	11.11
20	25
30	42.85
40	66.66
50	100
60	150
70	233
80	400
90	900
100	Broke!

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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The 2% Rule

The simplest and most effective way to protect your equity through risk management is to establish strict loss parameters and abide by them. One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1).

For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade. The powerful beauty of this rule is that if you strictly adhere to it, you would have to make dozens of consecutive 2% losing trades in order to lose all the money in your account. Even for a new trader, this is highly unlikely.

Although often used by traders, the 2% threshold is completely arbitrary. You certainly could operate with tighter or looser parameters. But, in order to manage your risk effectively, you need to choose a level that makes you feel comfortable and stick with it.

2% Rule
Account Size	Risk Management Stop Loss	Maximum Loss
$50,000	2%	$1,000
$25,000	2%	$500
$5,000	2%	$100

Table 1

The 2% Rule also creates a structure for your trading decisions, as illustrated in Table 2. For example, assuming you have a $50,000 account and you want to buy 5 Canadian Dollar contracts, the 2% Rule tells you that you could risk no more than 20 ticks on the trade (5 contracts x $10/tick x 20 ticks = $1,000). If you wanted to operate with a more liberal 50-tick stop, you could only buy 2 contracts. Similarly, if you wanted to buy a larger position, say 20 contracts, you could risk no more than a scant 5 ticks.

Using the stop-loss threshold in conjunction with a predetermined risk/reward ratio also can help you establish exit points on your profitable trades. For example, assuming a 2:1 risk/reward-ratio, if you are risking 20 ticks on your 5 Canadian Dollar contracts, you should be looking to make 40 points, thereby making $2,000 if the market goes your way and only losing $1,000 if you get stopped out.

2% Rule and 2:1 Risk – Reward Ratio
Account Size	Maximum Loss Assuming 2% Stop Loss	Number of Contracts	Number of Ticks That Can Be Risked ($10/tick)	Profit Exit Point Assuming 2:1 Risk Ratio
$50,000	$1,000	5	20	40(+$2,000)
$25,000	$1,000	2	20	100(+$2,000)
$5,000	$1,000	20	5	10(+$2,000)

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Risk Aversion

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.” – Paul Tudor Jones, Tudor Investment Corporation

It’s common sense to believe that avoiding risk and limiting loss is good and that we make conscious, logical decisions to do just that. But, we may not be as rational as we think, according to Nobel Prize winner Daniel Khaneman and his associate Amos Tversky.

Indeed, Khaneman and Tversky found that economic behaviors were inconsistent with rational behavior. They discovered that investors feel more pain from losing a dollar than they feel happiness from gaining that same dollar. In other words, making money does not bring with it enough happiness to offset the pain and disappointment of losing money. This is known as loss aversion.

Status Quo Bias and Risk Aversion

If you experienced a financial windfall of $1 million and a casino offered you the opportunity to keep the money or flip a coin on a double-or-nothing bet, what would you do?

There is extensive empirical evidence that says you would decline the bet and not lose a moment’s sleep over it. In “proving” that most people would be unwilling to gamble away a sure thing—a conclusion that sounds right even to those of us who have never had the chance to carry out our own research in behavioral finance—two well-known economic principles are revealed—status quo bias and risk aversion. In other words, most people assume that the way things are is better than the way they will be if circumstances change. Furthermore, most people have little interest in assuming risk, even when the risk/reward ratio is in their favor.

The Experiment

Therefore, it is surprising to find out that when Khaneman modified the circumstances of this very question, but not the outcome, the vast majority of respondents reacted much differently than one might expect. In their initial study, they posed two scenarios:

Scenario 1 – Choose between the following:

You have a 100% chance of winning $3,000, or
You have an 80% chance of winning $4,000 and a 20% chance of winning nothing

Results:

80% of the respondents chose the certain $3,000, notwithstanding the fact that they had an excellent chance to win significantly more. A textbook case of status quo bias and risk aversion, this outcome is in line with traditional expectations.

Then, however, the subjects were presented with a different scenario, and the results were diametrically opposite to traditional expectations.

Scenario 2- Choose between the following:

You have a 100% chance of losing $3,000, or
You have an 80% of losing $4,000 and a 20% chance of breaking even

Results:

92% of the respondents chose the second answer—to risk losing $4,000 or trying to break even—even though they had the chance to lock in a significantly lower loss ($3,000), and it was highly likely (4:1) that by taking the gamble they would end up losing considerably more.

What is most surprising about the outcome of this experiment is that while the verbiage used in Scenario 2 suggests it is a different case than Scenario 1, in fact, it is identical in terms of the risk undertaken.

Both cases present a choice of a sure thing to be weighed against a gamble. On the surface, the cases seem dissimilar because one offers the great likelihood of walking away a winner and the other offers, at best, only a small chance of breaking even. Nonetheless, in both cases, the mathematical expectation of assuming the gamble is $3,200 ($4,000 x 80%).

In the first scenario, where one is likely to be rewarded for taking the gamble, the vast majority was more concerned about averting the 20% chance of getting nothing. In the second scenario, however, in which one is likely to be punished for gambling, all but 8% of the respondents chose to put themselves in harm’s way, ignoring the status quo and risking an uncertain outcome of dubious potential benefit.

Misconceptions of Taking Losses

It’s not about being right or wrong, rather, it’s about how much money you make when you’re right and how much you don’t lose when you’re wrong. – George Soros

What the Khaneman/Tversky experiment revealed is that, contrary to the common assumption, it is not risk that people abhor, but rather it is taking losses. Moreover, the fear of taking a loss appears to overcome the ability to think rationally. Why were 92% of the respondents in Scenario 2 willing to make a terrible bet? It appears they were focused only on the likelihood of a negative outcome and willing to do anything to avoid it, even something foolish.

As a trader, you will find yourself faced with this challenge every time you make a trade. In fact, the practical effect of Prospect Theory is that traders sell their winners too early, satisfying the desire to be right, and hold their losers too long, hoping that they will not have to take a loss and be proven wrong.

Consider the following real-world examples:

1. You are long at 25 and the market is trading at 20, which is a major support level. If the market trades below 20 will you get out with a loss or will you hold on, hoping the market rallies back? Will you search for another support point at, say, 10 and buy there to improve your average position price?

2. You are long at 25. The market rallies through resistance at 35, trades up to 75, and breaks back to 50. Do you take a profit at 50, aggravated that you have “lost” 25 points, even though the market is trading well above the new support at 35?

In both these cases and countless others similar to them, traders make the wrong decisions far too often. If you have convinced yourself that realizing a loss constitutes failure or that you must grab a profit because a sure thing will always be better than the uncertain future, you have passed into the realm of irrational thinking.

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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Position and Risk Management for Individual Traders

Risk management is an important aspect of trading. The amount of capital put at risk for each trade is based on many factors. Market participants should have an established plan to confirm that orders that are placed have an appropriate amount of capital for their account size and financial profiles.

Risk can be limited directly by the trader or with requirements placed by the exchange. All parties involved in the trading process will have risk exposure. The trader has risk, the broker has risk, clearing houses have risk and the exchange has risk. Each party has slightly different risk exposure, but all take steps to limit their risk due to an unforeseen market event.

Three Variables to Manage Risk

The first variable is deciding which futures contract to trade. Some markets are more volatile or the contracts have greater tick values than others. This means that some markets have the potential to make or lose more in dollar terms each day. For example, if the S&P 500 moves around 10 points per day and each point is worth $50, a trader might experience a $500 fluctuation in their account for one day. Another example is Crude Oil, which can consistently move $1 or more per day. Due to the tick value of Crude, this would equate to a potential $1,000 swing in a day. Knowing the typical profile of a futures market will help a trader decide if one market is riskier and/or suitable for their account. Individual traders who are not using futures contracts to hedge against physical commodities are known as speculators. Therefore, they can choose from a variety of contracts to trade, based on interest or the risk profile of their account.

The second way traders control risk is the number of contracts they trade. Market exposure is increased by more contracts and decreased by less. Traders should trade the number of contracts in their account based on risk scenarios for that number of contracts, and not simply trade the maximum number of contracts that their broker will allow based on initial margin requirements.

The third way is to set stops that are within your risk tolerances. Setting stops with a loss amount provides protection if the market does not move in your desired direction. Stops are an essential strategy when trading as an individual trader and can assist in exiting an open position if triggered by a pre-defined price level. This helps to prevent creating a loss scenario which is larger than you can handle.

Exchange Controls

Risk can be managed by you, as a trader, based on the decisions you make, but also by the exchange. This is done by setting the margin requirements that individual traders must fulfill to place orders and hold trades overnight.

The exchange limits risk by ensuring that the clearing firms post sufficient margin with the exchange to cover the potential losses for each open position.

Margin is used to limit risk at the broker level, as it requires traders have sufficient capital in their accounts to back the number of futures contracts they have open in the market at one time.

Traders are required to have an initial amount of margin to place an order and must also maintain maintenance margin minimums if the position is open. Typical maintenance margin is 80–90% of initial margin, but it will vary by broker. Brokers will also require more margin to be posted for positions that are held into the next trading day, versus positions that will be opened and closed within the same trading day.

Most brokers keep track of margin electronically in real time and will issue warnings to clients when they are not margin compliant, and may even liquidate their positions immediately upon a margin violation.

Clients will have to deposit funds or close positions to bring their accounts back in to compliance.

Margin Example

If the initial margin requirement for the S&P 500 contract is $4,800 and maintenance margin requirement is $4,500. The trader must have at minimum $4,800 of cash in their account for each contract they wish to trade.

If the trader buys two contracts with combined maintenance margin of $9,000, in an account with $10,000 they will have used up $9,000 of the $10,000 buying power of the account.

The trader would get a margin call if the account loses more than $1,000 or 10 ES points per contract. If the trader purchased the contracts when the ES was at 2,600 they would receive a margin call when the price of the ES moved below 2,590.

At the end of each trading day, trades are Marked to Market. This means that the settlement price of the futures contract is compared to the purchase price or previous close and money is either deposited to the client account or withdrawn from the client account.

If, at the end of the trading day, the futures contract has increased in value compared to the purchase price or the previous day’s close, then money will be deposited in the client’s account. If the futures contract has decreased in value, then money will be withdrawn from the client’s account.

Previous Close	Close Today	Mark to Market	Account Balance
			$10,000
2600	2610	$500	$10,500
2610	2595	$750	$9,750
2595	2620	$1,250	$11,000

To keep track of the profit and loss (P&L) of the trades, it is listed in real-time in your account. Watching the P&L allows you to track whether your position is at a loss or a gain, and how to manage the position. This real-time information can help traders decide if it is time to exit a trade based on profit or loss targets being reached.

Risk management is very important for a trader. Understanding the rules of not only a profitable position, but also how to manage a losing position will be key to the success of a trader.

For additional information, please visit:

If you have questions send us a message or schedule an online review .

Regards,
Peter Knight Advisor

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