Cash settlement of a future contract

[best-trader]

I have a question. I asked it on Elite Forum but nobody responded.

I was reading about futures on investopedia and have come across the following:


As the accounts of the parties in futures contracts are adjusted every day, most transactions in the futures market are settled in cash, and the actual physical commodity is bought or sold in the cash market. Prices in the cash and futures market tend to move parallel to one another, and when a futures contract expires, the prices merge into one price. So on the date either party decides to close out their futures position, the contract will be settled. If the contract was settled at $5 per bushel, the farmer would lose $5,000 on the futures contract and the bread maker would have made $5,000 on the contract.

Question: if I buy index futures or any other futures, can I hold them for a week or month (I understand there is a "rollover" date) but is there any other cash settlement that can happen in between or on a daily basis? I am a little confused. thanks

 

[Martinghoul]

No... In an overwhelming majority of cases futures settle (whether physical or cash) on a specific date, so they will remain active/tradable until then.

 

[best-trader]

Thanks, so that means I can treat them as stocks and hold for a week or 2?

 

[ns1000]

In the case of index futures, you can hold them until the expiry of the futures contract, at which time you will pay or be paid the difference between opening and closing values. However, when you're talking about cash settlement on a daily basis, I think you may be confusing settlement with margin payments. The basis of futures trading is that the value of your position is calculated on a daily basis and that the cash plus running p&l on your account must be greater than the margin required. In this regard you may have to pay more to hold the position before expiry.

If you're looking for index exposure but treated like a stock, have you looked at ETFs?

 

[best-trader]

No, I haven't. To be honest, I am only familiar with stocks and have been trying to get into futures. Which ETFs would you recommend?

 

[ns1000]

You could have a look at ETFs that track the movement of an index if you want - http://uk.ishares.com/en/rc/funds/overview

FTSE100, AEX, Mib, S&P etc all covered.

If you're used to trading shares, you might feel more comfortable with these than a leveraged product (although you can trade most of them as CFDs too)