Free lesson · FX and commodities

Futures profit and margin cash demands

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Futures gains and losses are settled through cash variation margin as the market moves, before the final trade outcome is known.

Compute mark-to-market using signed contracts and the contract’s physical multiplier. Initial margin is collateral, not the purchase price of the underlying exposure. A strategy can ultimately converge while running out of liquid cash during an adverse intermediate move.

For a multi-day path, sum variation margin and financing cash flows. Calendar spreads and cross-venue hedges may not receive offsetting margin treatment. Never assume gains on one venue are immediately transferable to another.

Apply it in a strategy

• Freeze inputs at the stated decision time and record their units.
• Build pathwise liquidity reserves for futures carry and basis strategies.
• Recompute the example, then change the material assumption and explain the difference.

Research deliverable

Futures profit and margin cash demands: produce the worked calculation, a timestamped input record and a written decision addressing this limitation: A final profitable spread does not ensure the account can meet interim margin calls.

These are synthetic mechanics examples, not historical performance or paper replications. Module evidence and research boundaries record the 12 September 2026 review.

# Python 3.10+; standard library and NumPy only.
# Synthetic teaching inputs; conventions and units are defined in the notation above.
def variation_margin(contracts,multiplier,old_settlement,new_settlement):
    if multiplier<=0: raise ValueError('Positive contract multiplier required')
    return contracts*multiplier*(new_settlement-old_settlement)

assert variation_margin(2,1000,80,77)==-6000
print(variation_margin(2,1000,80,77))