Futures Offset Method (Platform vs. Statement)
Due to different offset methodologies used by the
platform and the daily statements, the open position showing on your platform could
differ from what shows on your statement.
First in First Out (FIFO)
Rules for Offsetting Trades
· Rule 1: Trades bought and sold during the same trading session (i.e., "day trades") are always offset first, by matching the lowest-price buy with the lowest-price sale, the next-lowest-price buy with the next-lowest-price sale, and so on. If the number of contracts purchased is not equal to the number of contracts sold with in the same session, the resulting open position will either be the highest priced buy or the highest price sale.
· Rule 2: If the number of contracts purchased is not equal to the number of contracts sold within a given trading session, the unpaired trades are matched against open positions bearing the oldest trade date (i.e., first-in, first-out, or "FIFO").
· Rule 3: When trades today offset against multiple open positions from a previous date, the lowest-price position from the prior day is offset first. Then the next-lowest-price position is offset. And so on.
You enter this morning's trading session long one Wheat
contract from 875.00 (you purchased this contract on a prior day). Then, you sell one Wheat contract at 915.00. The system will show this morning's sale at
915.00 offsetting against the previous purchase from 875.00, and you would no
longer have an open position in the Wheat market.
However, suppose prior to the close of the trading day, you buy another Wheat contract, this time at 920.00. While you perhaps intended
the 875.00 buy and the 915.00 sale to match up, Rule # 1 specifies that
purchases and sales in the same trading session are always matched and offset
first. So, the statement will match today's 920.00 buy with this morning's
915.00 sale, and your long position from the earlier date, at a price of
875.00, will be shown as the open position listed on your account statement.
The important thing to remember is that, despite any
differences between how you intended to offset your positions, how they are
offset on the platform, and how they are actually offset on the statement, your
account equity ends up the same in either case.
Let's continue the example, and we'll walk you through how the equity in your account remains the same.
Let's assume that Wheat closes at 925.00 today. In your
mind, you bought a contract the other day for 875.00 and sold it this morning
for 915.00, a gross profit of $2,000. You also think that you currently should have
an open long position from 920.00, which, given today's closing price of
925.00, implies a gross profit of $250. Total gross profit, therefore, is $2,000 + $250, or
$2,250. This profit is reflected in the account value.
Now, according to futures industry conventions, the statement says that you sold one contract this morning at 915.00 and bought one contract this
morning for 920.00, a gross loss of <$250>. On the other hand, the statement shows a long
position from 875.00 in your account from a previous day, which, given the
925.00 close today, implies a gross profit of $2,500. Total gross profit is ($250) +
$2,500, which amounts to $2,250, the same figure you calculated.
How can the math work out the same in both scenarios?