Is the initial value of a futures contract zero?
The answer is b.
What is the initial cost of futures?
Futures are standardized, exchange-traded derivatives (ETDs) with zero initial value and a futures price f0(T) established at inception.
Is the value of a forward contract at initiation zero?
At Initiation
The forward price that the parties have agreed at the initiation is a special price that results in the contract having zero value and thus no arbitrage opportunities. The forward price at initiation is the spot price of the underlying compounded at the risk-free rate over the contract's life.
Why the value of a futures contract is zero after it has been marked to market?
Unlike forward contracts, futures contracts are marked to market daily. As futures prices change daily cash flows are made, and the contract rewritten in such a way that the value of future contracts at the end of each day remain zero.
What is a zero value contract?
If both parties are willing to exchange their commitment to the contract for $0, then it follows that the initial value of the contract is zero.
What is initial contract value?
Initial Contract Price means the value of WORK contracted initially as per SCHEDULE-F and excluding value of EQUIPMENT, services and any material provided by OWNER/CONSULTANT free of cost to CONTRACTOR.
What is the initial margin in a futures contract?
This is the normal margin that will have to be charged when you propose to carry forwards your futures position beyond the day. Normally, in case of Carry Forward trade the initial margin varies from 10% to 15% of the notional value of the contract depending on the risk and volatility of the stock.
What is usually the initial margin for a futures contract?
Margin is set by the futures exchange and is typically 3% to 12% of the contract's notional value.
What is the value of a futures contract?
The notional value of a futures contract demonstrates the value of the assets underlying the futures contract. To calculate the notional value of a futures contract, the contract size (in units) is multiplied by its current price. Notional value helps you understand and plan for the risks of trading futures contracts.
How to calculate forward price and initial value of a forward contract?
Forward Price = Spot Price – Cost of Carry
To determine the future value of potential dividends of an asset, the risk-free force of interest is used.
What is the initial value of a forward rate agreement?
A forward rate agreement (FRA) is a forward contract on interest rates. The FRA's fixed interest rate is determined such that the initial value of the FRA is zero.
What is the fair value of forward FX contract?
The mark-to-market value of a forward contract is zero at the time the contract is initiated (time 0). It, however, changes during the life of the contract to reflect changes in spot exchange rates and/or interest rates in either of the currencies involved.
Can a futures contract have a negative value?
When the supply of a particular commodity or asset in the futures market significantly exceeds demand, the price can crash, potentially dipping into negative territory. This indicates that holders are willing to pay someone to take the commodity off their hands.
Why are futures contracts risky?
The Risks of Trading Futures
Basis risk: This is the chance that the price of the futures contract doesn't move the same way as the price of the asset. This means that even if your predictions play out with the prices for the underlying asset, you might not make out as well as expected.
What is the downside of futures contract?
Future contracts have numerous advantages and disadvantages. The most prevalent benefits include simple pricing, high liquidity, and risk hedging. The primary disadvantages are having no influence over future events, price swings, and the possibility of asset price declines as the expiration date approaches.
What makes a contract null?
A null contract is one that was never valid from the beginning, while a void contract becomes invalid due to certain circ*mstances, such as illegal provisions or the incapacity of one party. Consequently, such contracts are not legally binding and cannot be enforced.
What are the disadvantages of a zero hour contract?
Disadvantages of a zero-hour contract
No fixed income: With no set hours, how much you earn will vary each week. While you might have lots of work one week you might find yourself with much less the next. In this situation, it's possible to find financial help through benefits.
Can a contract be for zero dollars?
The Takeaway. In a fixed price contract, you may bid zero or below zero unless the solicitation prohibits this on one or more CLINs. There are several reasons why a bidder might do this: The bidder has found a new approach to meeting the requirement, and wishes to get started in this particular business.
What does initial mean in futures?
Initial margin is the amount of funds required by CME Clearing to initiate a futures position. While CME Clearing sets the margin amount, your broker may be required to collect additional funds for deposit. Maintenance margin is the minimum amount that must be maintained at any given time in your account.
What is the fair value of a futures contract?
In the futures market, fair value is the equilibrium price for a futures contract or the point where the supply of goods matches demand. This is equal to the spot price and accounts for compounded interest and lost dividends resulting from the futures contract ownership versus a physical stock purchase.
What is initial balance futures?
In simple words, Initial Balance (IB) is the price data, which are formed during the first hour of a trading session. Activity of traders forms the so-called Initial Balance at this time. This concept was introduced for the first time by Peter Steidlmayer when he presented the market profile to traders.
What is the purpose of initial margin futures?
The initial margin is essentially a down payment on the value of the futures contract and the obligations associated with the contract. Trading futures contracts is different than trading stocks due to the high degree of leverage involved. This leverage can amplify profits, but also losses.
What is the difference between initial and day margin futures?
Futures margins refer to the amount of capital required in order to take on a futures position. Initial margin is what you need to initiate a position, the maintenance margin is what you need to maintain that position, and the day margin is the amount required for positions that will be opened and closed same-day.
Do futures contracts lose value?
Yes, it is possible to lose more money than you initially invested in futures trading. This is because futures contracts are leveraged, which means you can control a large position with a relatively small amount of investment upfront.
Who pays initial margin in futures?
The buyer or seller of a futures contract is required to deposit part of the total value of the specified commodity future that is bought or sold – this is known as margin money.
