Futures: when to pay up?

Mr Ridley

Hi guys,

I'm new to these boards and couldn't find a "Post a question" type forum, so I've posted here - if it's in the wrong place, please do move it!

I'm after an answer to a question I haven't been able to find elsewhere on the web: I'm new to trading and have various (heavy) books - just made a start on John Hull's bible...

Let's assume, for simplicity's sake, it's Jan 2002. I put myself in a long future position by negotiating a contract on gold (100 oz) for December 2002 (not sure if the dates would work in the UK, but bear with me!!). Spot price is, let's say, £10/oz; future price for Dec is £20.

Come June I feel like "cashing in": the spot price is now £15 and I've managed to short someone with a contract to expire in December, at a future price of £40.

I've "made" £20/oz and closed off any delivery expectations I once had.

But - this is the thing I am struggling to understand: *WHEN* do I get my £20/oz for 100oz's? At the time the contract would expire? Or don't I get it at all? Am I missing something? Also, who pays me the £20/oz? The Clearing House?

Sorry to introduce myself in this full-on way, but I'm keen to learn and do things *thoroughly* rather than skirt through then basics.

Many thanks!

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Hi Mr Ridley,
As soon as you close the second part of your trade, you get the profit or loss on the deal. You would not be expected to 'take delivery' of gold when the contract expires in December. It is simply a tradable commodity to buy/sell as any other financial instrument. I mean if you bought 100 march hogs at whatever the going price was, you would not expect to see them running around in your back garden come April time.

Your money, when you take the trade on is held by your broker or whoever you trade with and these act as a neutral party simply to insure that the funds are in place to cover the trade. So whenever you click the button or instruct your broker to close the second leg of the trade, the profit or loss on the deal is in your trading account.

Make sure you understand ALL the rules for the instrument you intend to trade. With certain markets sometimes you can only trade at set times and even in those times the market can freeze limit up or limit down.

All the best.

Excellent -

Many thanks for clearing that one up.

I've deliberately held off from doing anything on the "live" markets before I understand them to a level I feel confident enough to do stuff with.

I've only just signed up to LIFFE's simulation trading online program, so I'll be playing with that for a few months!

Thanks again,
The 'liffe' move is a good step forward as it will give a feel of real trading, and you must try to believe that it is real money you are using, but more importantly do not cheat yourself with the results, such as zeroing the clock after a few losing trades, you will only damage yourself in the long run.
When you can consistantly win at that, and only when you can consistantly win, will it be time to progress to real trading. (After all, if you can't do it with practise money, you will certainly not be able to do it with real money and real emotions).
Then keep all trades small until you are comfortable with trading and again comfortable with winning.

Very importantly though, you must first learn how to lose.

Do not make the mistake that hundreds of people before you have made in that this is easy money.

One other thing. Prepare to find out things about yourself you never knew existed.

Good fortune.

i've looked on the Euronext Liffe site and cannot seem to find the simulator.
Would be interested in this.