Gains and Losses on Futures Contracts

Gains and losses on futures contracts are not only calculated on a daily basis, they are also credited or debited to each market participant’s brokerage account on a daily basis. Thus, if a speculator were to have a $500 profit as the result of a day’s price changes, that amount would immediately be credited to his or her account and, unless required for other purposes, could be withdrawn. On the other hand, if the day’s price changes resulted in a $500 loss, the account would be debited for that amount.

The process just described is known as daily cash settlement and it’s an important feature of futures trading. As will be seen when margin requirements are discussed later, it is also the reason a customer who incurs a loss on a futures position may be called on to immediately deposit additional funds.

Reprinted with permission from the National Futures Association. Copyright 2002.