Question29 (b) What is the gain or loss for Myles on this futures contract after the first trading day? [1 mark] [input] Your response must be entered as a positive (profit)/negative (loss) numerical value with 2 decimal places and excluding the dollar sign ($) and any commas (,). Maximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

To determine the gain or loss on a futures contract after the first trading day, we need to compare the price at which the contract was initially entered into with the settlement (or closing) price on the first trading day.

First, identify the key values you would use in the standard formula: Gain/Loss = (Settlement price on day 1 − Initial futures price) × Contract multiplier. The contract multiplier converts price changes into monetary value, and the sign of the result indicates profit (positive) or loss (negative).

Next, apply the sign convention correctly. If the settlement price on day 1 is higher than the initial price, the holder of a long futures position incurs a gain, while a short position incurs a loss. Conversely, if the settlement price is lower, a long position experiences a loss and a short position a gain. The exact numeric outcome depends on the contract’s multiplier and the price move.

In this specific question, the provided answer is -500.00, which indicates a loss of 500 in currency units after day 1. Interpreting this requires knowing the contract size and price change: a negative result means the position you’re evaluating moved against you by an amount equal to 500.

If you were given the initial price, the settlement price, and the contract multiplier, you would plug them into the formula above to verify the -500.00 figure. Without those details, we can still reason about the process: calculate the price change, multiply by the multiplier, and apply the correct sign based on whether you held a long or short position.

Common sources of error to watch for include mixing up the order of subtraction in (Settlement − Initial) versus (Initial − Settlement), forgetting to apply the contract multiplier, and misinterpreting the sign for long vs. short positions. Ensuring the units align (currency per unit vs. total contract value) is also essential for an accurate calculation.

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