Settlement

astrade · #1 18th October 2006, 06:34 PM

Trader Gurus,

I am new member with limited knowledge in derivatives and for this forum.
Could some one clear my doubt?

For Example:
If I had to buy 1 contract of Nov Nifty at 3700. And I was not able to close my position till the settlement date.
On the settlement date (Index closed at 3750 or lower than 3700), what is the amount I would need to settle on the settlement date with the broker on both the cases.

Could anyone kindly help me out in this query?

scorpio155 · #2 18th October 2006, 08:01 PM

Let me give this with an example

1> Buy Nifty future at 3700 on Oct 10th -- the expirty date being Oct 24th

When buying this u pay a margin amount to buy that contract. -- say 20% of the actual amount

Now on Oct 11, the market moves up by 10 points, so at the end of the day you will get 10*100 = 1000 bucks gain, -- this is added to your bank account/margin (that 100 there is the nifty contract)

Now on Oct 12, the market goes down by 40 points -- the price of the nifty was 2710 and *not 2700*, closing of yesterday. And now the last traded price is 2670 -- down a 40 points -- 40*100 = 4000
This is a negative 4000 which has to be taken from your margin/ bank account.

Every day, the gain/loss is calculated and this is what is called Marked to Market or MTM

so now in total at the end of expiry (getting to your question) say nifty was
at 1> 2750 -- you made a total gain 50*100 = 5000
2> 2630 -- you made a total loss of 70*100 = -7000 -- this is the amount in total which would have been taken from the margin/bank account.

But then during volatile times, you may see -10000 one day and then next day you may get 15000 back to your account, the key is that the amount is settled everyday in cash.

hope this helps

-Ashish

sudhir gupta · #3 22nd October 2006, 07:17 AM

what about the least brokerage ?
- sudhir