Trading dynamics

Trading dynamics

Futures contracts trading dynamics

Each type of futures contract has a specific trading code, also known as ticker, so investors know exactly which contract they are trading.  

Trading hours are defined by B3 and vary according to the contract type. Most contracts are traded between 9 AM and 6 PM, but some contracts have specific trading hours.

Opening positions

One of the most interesting features of futures contracts is that they allow investors to open positions and benefit from both rising and falling prices. No one pays or receives anything when opening a position. Initially, only a collateral deposit is needed equivalent to a percentage of the total value of the open position. Collateral can be posted in cash, government bonds, stocks, Bank Certificate of Deposit (CDB), letter of credit, etc.

The amount of collateral posted is set by B3 and varies according to the contract type. Collateral is returned to investors after the positions have been closed out. This is another important feature of futures contracts, as investors can open positions of high nominal values without having to disburse the full traded amount. This not only enables hedging but also allows investors to leverage their positions.

Daily settlement

The profit or loss that results from the investment is calculated and settled on a daily basis through daily settlement of accounts. From the day an investor opens a long or short position, the daily settlements will have to be cleared.

B3 calculates and discloses the settlement prices for each type of contract on a daily basis, and these prices serve as a parameter for all long or short positioned investors. When the daily settlement price is greater than the position’s opening price or greater than the previous day’s settlement price, long positioned investors are paid the amount corresponding to the profit from their position. Short positioned investors pay the amount corresponding to the loss of their position.

When prices fall and the daily settlement price is smaller than the position’s opening price or the previous day's settlement price, the opposite occurs: Short positioned investors receive the amount and long positioned investors pay the amount. This is repeated every day as long as investors hold their long or short position in a futures contract.

The dynamics of daily settlements are critical for the safety of capital markets and investors, as they reduce credit risk and enable investors to close their positions at any time without having to wait until the contract expires.

Example of daily settlement

Let us assume that on October 15, investors positioned themselves to buy a mini index futures contract at BRL104,490. When calculating the daily settlement price, it became BRL104,590. Therefore, on the 15th, the long investor made a BRL100 profit and the short investor had a loss of BRL100. On October 16, the positions started at the previous day's closing price, BRL104,590. On that day, after trading, the daily settlement price closed at BRL104,700. So, the long investor profited BRL110 and the short investor lost BRL 110. On October 17, the daily settlement price was BRL105,000. So, long investors profited BRL300 and short investors had a loss of BRL300.

Therefore, over a three-day period, long investors made a total profit of BRL510 and short investors had a total loss of BRL510.

Settlement

Settlement occurs on the last day of the contract term. Investors who hold their position until the contract’s expiration will be automatically zeroed, namely, B3 considers that investors who were long positioned sold the same quantity of contracts and investors who were short positioned bought the same quantity of contracts, therefore closing out their position.

Most futures contracts are cash settled when buyers and sellers pay or receive the last settlement value and positions are settled.