Life Cycle of a Futures Trade

CS On-Boarding 2011
Contents
1. Trade Flow: The Basics
2. Day One 2. Day One
3. Day Two
44. Day Three
5. Day Four y
6. Day Five
Trade Flow: The Basics Trade Flow: The Basics
Order instructions fromclient to buy or sell a security
Client Newedge (FCM) Exchange / Clearing House
Activities Trade Flow
Client places order with
Newedge.
Newedge executes
trade
Front Office
Exchange
Order instructions from client to buy or sell a security
Execution a clients order remains open until it is
filled at the exchange. This is known as execution
Fill the executed trade details flow back to the trader
and the client. The fill is like a receipt that is assigned
to an order containing information pertaining to how and
g ( ) g g
Fill that is assigned
to an order
Fill that is
assigned to
an order
Allocations are
sent downstream
to middle office for
Client sends
confirmation
files (or
recaps) of
Client
where the order was executed. This can be electronic or
traditionally, was paper
Allocations post-execution summaries of a completed
and closed customer orders that are sent to Middle
Office
Confirmation the client sends recap files to the
to middle office for
processing
Top day
p )
their trades
Exchange
sends trades to
Clearing House
for settlement
Confirmation the client sends recap files to the
clearing member to confirm the orders they made. This
is usually sent for give-in business, or in some markets
(e.g. France) confirmations are mandatory from a
regulatory standpoint
Exchange trade feed the trade data sent from the
exchange at regular intervals (real-time hourly) to
exchange
trade feed
Trade data sent downstreamto
Middle Office
exchange at regular intervals (real-time, hourly) to
middle office. This data is compared and matched to the
data from the client and the Front Office
Clearing House trade data is sent to the Clearing
House for settlement
Margin Calls the Clearing House calculates the value
End of day
exchange
trade feed
Trade data sent downstream to
back office and client services
Netting and
settlement
instructions
Back Office
Client
Clearing House
of the clearing members open positions and may
request an additional margin from the clearing member
Netting and settlement the clearing house nets multi-
laterally against all their member firms and sends
settlement instructions to each clearing member
Fees &Commissions following settlement, the clearing
Margin
calls
instructions
Client reporting
Fees & Commissions following settlement, the clearing
member calculates the clients open positions and
charges the appropriate fees and commission
Client Services
Day One
On J une 20
th
, Client ABC Trading has shorted 2 Sep 11 Topix
trades at 809.50 and 817.00.
Th ttl t i 806 50 lti i k t t k t The settlement price was 806.50 resulting in a market to market
of 135,000 J PY. As ABC Trading is single currency margined,
they will be paying their initial margin requirement in USD. Thus,
the Open Trade Equity in J PY is convertedto USDin the the Open Trade Equity in J PY is converted to USD in the
converted total column and combined with the USD OTE from
the Sep e-Mini contracts.
Day One Statement
Day Two
On J une 21
st
, the settlement price for Sep 11 Topix was
815.00. ABC Tradings positions lose money on the
day. ABC also sent in USD in wires to meet the margin
call from J une 20
th
as reflected in Cash J ournals. As the
Total Equity converted into USD covers the Initial
Margin, there is no margin call for the Day Two.
Day Two Statement
Day Three
On J une 22
nd,
the settlement price for Sep 11 Topix was
826.50. ABCs unrealized p&l for the day is -265,000
J PY. The wire in from ABC was in USD and goes to the
Cash J ournals bucket in USD. ABCs converted Total
Equity covers the converted Initial Margin and there will
be no margin call.
Day Three Statement
Day Four
On J une 23
rd
, ABC closes out its positions, making a
realized profit on its Sep 11 Topix positions of 70,000
J PY. There are no margin requirements for this
statement because there are no open positions and
Total Equity=Ending Account Balance.
Day Four Statement Day Four Statement
Day Five
On J une 24
th
, ABC Trading has no open positions, but
there is a foreign currency balance of 61,692 J PY. ABC
may choose to convert the Ending Account Balance or
Total Equity either by request with their CS
Representative or on an Auto-Convert program with
Newedge.
Day Five Statement