How futures are traded
In order to open a futures position, you place an order with your broker to either buy or sell one or more futures contracts. When another participant in the market trades with you, and the resulting contract is registered with the ASX Clear (XJO, XFL and XPJ futures) or ASX Clear (Futures) (SPI futures and Sector futures), you are said to have opened a futures position.
You do not pay or receive the full value of the futures contract when you establish your position. Instead, whether you buy or sell futures, you will pay a small initial margin. Over the life of the futures contract you will either pay or receive variation margins as the price of the futures contract varies.
Having opened a futures position, you now have two choices:
- close out your position; or
- hold your position until maturity
If you have bought futures, you close out your position by selling futures with the same maturity date. If you have sold futures, you close out your position by buying futures with the same maturity date. Closing out effectively cancels your open position.
The difference between the price at which you open and the price at which you close your futures position determines the profit or loss you make on the trade.
If you hold your position until maturity, the contract must be settled.
ASX index futures are cash settled. Your profit or loss depends on the difference between the price of the futures contract at maturity and the price at which you originally traded the contract. To trade futures, your broker must be a trading participant of ASX futures.
When you trade futures, you do not pay the full value of the contract up front. Instead you pay an initial margin, which is a small percentage of the value of the contract. Because of this, futures are generally a cost efficient way to trade your view of an index.
The costs involved in trading futures include:
|Brokerage||ASX Clear fees||ASX Clear (Futures) fees|
|Brokerage charged by brokers varies and may be:
||For the XJO, XFL and XPJ futures ASX Clear charges a registration fee of $0.45 per futures contract traded per side plus GST.
There is also a Cash Settlement Fee of $0.35 per contract per side plus GST.
|For the SPI futures ASX charges a bundled trading, clearing and settlement fee of $0.90 per futures contract per side.
Note: the SPI futures trades at $25 per point movement whereas the XJO, XFL and XPJ futures trade at $10 per point