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Imagine being able to trade futures contracts with limited risk: namely, a guaranteed stop-loss. In addition, imagine eliminating those often "mysterious" wild intraday moves in futures prices, by having the contract only marked-to-market once a day, at the close of market trading. Imagine LESE Limited Futures contracts. LESE Limited Futures contracts correspond to futures contracts at major exchanges, and are priced identically with those contracts, but generally differ in the "size" of the contract (i.e. the value of a change in the futures price). They also differ in two other respects: 1) a limited-loss feature; 2) once-a-day mark-to-market. LESE Limited futures work like this. First, you will post bids and/or offers on LESE. A bid price is the price you are willing to buy, or go long, a LESE Limited Futures contract. An offered price is the price you are willing to sell, or go short, a LESE Limited Futures contract. You may post bids and offers for 1 or more contracts. Any bid or offer becomes an operational futures contract when someone hits your bid or lifts your offer. As prices change in the underlying market, one side of the futures contract is implicitly making gains, and one side is implicitly making losses. But any gain or loss is only realized when the contract is marked-to-market at the day's closing price. You can post a bid or offer at any time. If you have a futures contract in existence (because someone has hit your bid or offer), you can also choose, at any time, to close it out by marking it for closure. However, the contract will still remain in force until the next time it is marked-to-market. Thus, the contract represents, in effect, a series of one-day bets on the market price. If you mark an existing contract for closure, it will automatically be closed after the contract has been marked-to-market at the end of the day. Now we come to the limited loss feature. In addition to posting the price you are willing to go long or short a futures contracts, you also post the number of "lots" of capital per contract you are willing to lose if the futures price moves against you. The minimum commitment is 1 lot. The size of a typical lot is USD 250 (see specific detail in the table at the bottom of the page). You may commit one or more lots to each futures contract. For example, if you commit 3 lots to a specific futures contract, then the maximum you can lose if the price moves against you is 3 x USD 250 = USD 750 (or the equivalent for contracts valued in GBP, EUROS, or YEN). Other market participants can choose to hit your bid, or lift your offer, for up to, but not exceeding the number of lots of capital you have committed to a contract. Contracts will be marked-to-market once per day. The prices will be the publicly available closing futures price as disseminated by the exchange for the futures contract in question (see listing below). Wins and losses will be computed and posted to the respective accounts on each side of the futures contract. If, however, the price movement has depleted the capital of one side or the other, the contract will automatically be closed out, and only the maximum capital committed by the losing side will be credited to the winning side. When you post a bid or an offer, the money representing the total number of "lots" of capital (lots per contract times number of contracts) you are willing to risk will be put in escrow in LESE. Similarly, when someone hits your bid or lifts your offer, their committed capital will be placed in escrow. Therefore you are assured that any profits you make will accrue to your account, up to the limit of committed capital (in lots of USD 250 or so) on the opposing side of the futures contract. Here is a typical bid/offer ladder: Dow Jones 09/20/02
Look at the 4th row of the table. Someone is offering to sell, or go short, 1 Dow Jones futures contract at 8645. They have committed 5 lots per contract to this position, or $1250. You may lift this offer (buy it, go long) for 1 contract at a price of 8645, with a capital commitment of 1, 2, 3, 4, or 5 lots (but not more than the 5 lots offered). As soon as you lift this offer, a futures contract is in force, with you long and the other party short, and will automatically remain in force until the contract is marked-to-market at the end of the day. Thereafter it will also remain in force unless either 1) one side of the contract has cancelled it, or 2) the maximum capital commitment on one side has been depleted. To cancel a contract you must mark it for cancellation prior to the time it is marked-to-market. Otherwise, it will automatically remain in force until the next mark-to-market. A bid or offer that is only partially filled with respect to the number of contracts, will remain on bid or offer until the number of contracts is depleted, or the bid or offer is cancelled. Cancelled bids and offers are cancelled immediately. (It is only futures contracts in existence—bids hit or offers lifted—which must remain in existence until they are marked-to-market at the end of the day.) Profits and losses are calculated according to the price movement multiplied by the point value shown in the table below. When a contract is initiated, each side shall be charged a fee of 1/10 of 1% of the maximum capital committed to the futures contract (25 cents for a USD 250 commitment). There is no fee when a contract is closed out. List of Initial Futures Contracts
Mark-to-Market SourcesCBOT: http://quotes.ino.com/exchanges/?e=CBOT CME: http://quotes.ino.com/exchanges/?e=CME NYMEX: http://quotes.ino.com/exchanges/?e=NYMEX MATIF: http://www.matif.fr/scripts/nojava.pl EUREX: http://www.eurexchange.com/cgi/eurexDQ?group=IDX LIFFE: http://www.liffe.com/reports/eod?item=Daily |
