What is the return on invested capital to an investor who purchased a futures contract at a price of 297 and sells the contract for 308? The contract is on 5,000 units, requires a 3% margin deposit and is priced in cents per unit.|||Here's my calculation for your problem:
Initial trade = 5,000 * 2.97 = 14,850
3% margin = 14,850 * 0.03 = $445.50
Liquidation of position = 5,000 * 3.08 = 15,400
Gain = $15,400 - $14,850 = $550
If the entire "invested capital" is the margin deposit of $445.50, then the return is:
$550/$445.50 = 123%
This exercise shows the powerful leverage available in the futures markets. What would have been the loss had the position declined to 277? Not only would the initial margin deposit be gone, but the investor would owe the broker an additional $554.50, for a loss of 224%!
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