Question

Suppose you enter into a short position in 6-month futures contract on 100 ounces of gold at a futures price of $1,863 per ounce. The initial required margin is $5,000. Two months after establishing the position, you notice that the futures price at the end of the trading day is now $1,844 per ounce. What is the rate of return in your account considering the initial deposit of $5,000 that you made? (Note: You are asked for a rate of return, not a dollar amount.) Express the rate of return in decimal format, rounded accurately to 4 decimal places (e.g., 10.67% should be expressed as 0.1067 and nothing else).

Answer 1

You have sold futures contract

sale price = 1863 and price on expiry = 1844

so you have a profit as price has decreased

Profit = (1863-1844) x 100 ounces = 1900

Initial margin = 5000

so rate of return = profit / initial margin = 1900/5000 = 0.3800

Answer : 0.3800