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IBBC CAPITAL ACADEMY / 2027

Futures prices and daily cash settlement

Independent IBBC Capital draft content for self-study. Not affiliated with or endorsed by CFA Institute. New lessons await subject-matter review. No CFA designation or official PSM credit is awarded.

Learning goals

  • Explain daily settlement using mechanisms and limitations.
  • Explain funding effects using mechanisms and limitations.
  • Explain hedge comparison using mechanisms and limitations.

Draft · approximately 25 minutes, excluding further revision.

Daily settlement

Futures variation margin realizes daily gains and losses as cash; a forward normally defers its contractual settlement, creating different cash timing.

After settlement a futures position’s contract value resets while its quoted futures price can remain far from zero; distinguish price from accumulated cash gains.

Funding effects

With deterministic interest rates and matched terms, forward and futures prices can coincide; daily settlement alone does not imply an arbitrary premium.

When futures prices positively covary with rates, long daily gains arrive when reinvestment is attractive, which can make futures prices higher than comparable forwards.

Hedge comparison

A future’s standardized maturity and deliverable specification may not match an actual exposure; basis and roll risk remain even if notional is matched.

Margin liquidity requires funding reserves and stress planning; an eventual profitable hedge can still face a short-term cash call.

Formula and assumptions

Daily futures P&L=contracts×multiplier×price change

Original applied case: Futures prices and daily cash settlement

  1. A long holds three futures with multiplier 50; settlement price rises from 120 to 122.
  2. Variation cash gain=3×50×(122−120)=300.
  3. A reversed move would require cash; initial margin is distinct from this daily gain.

Errors to catch

  • Do not assume: Futures never exchange cash before maturity.
  • Do not assume: Daily settlement makes the quoted futures price zero.
  • Do not assume: Forwards and futures can never share a fair price.

Original knowledge check

Answer every question before checking. Review explanations after submitting; retry starts a new attempt.

Sources and coverage status

These original lessons are drafts. Public outlines are used to check scope; the official learning-outcome text and proprietary question banks are not reproduced here. Follow the source for exam-year requirements and updates.