On Fri, Jul 07, 2000 at 11:56:33AM -0500, Richard Wackerbarth wrote:
> On Fri, 07 Jul 2000, John Hasler wrote:
> > Richard Wackerbarth writes:
> > > Besides, "milk" and "sugar" are poor examples. They are seldom sold by
> > > the gallon (pound) but rather by the "container".
> >
> > Actually, milk is sold by the hundredweight (my neighbors are presently
> > complaining about the price). Not sure about sugar.
>
> Oh, at THAT level :) I was describing the retail consumer transaction.
> Actually, it isn't necessarily sold by the hundredweight. It make be PRICED
> by the hundredweight and sold by the quarter pound.
>
> The same thing is true of "futures" and bonds. If I recall correctly,
> 'beans are sold by the freight car load but priced by the bushel.
This is correct. One CBOT Soybean futures contract is for 5,0000
bushels of beans, but the price is quoted by the bushel, in eighths of
a cent. (The minimum price change on the exchange is 1/4 of a cent,
but the prices are all quoted in eighths. Go figure.)
So if you are long one soybean future and the price goes up 1/4 of a
cent per bushel, you are up $12.50 ($12.50 = 1250 cents = 5000 / 4).
Thus rather than being able to calculate P&L with
(# of contracts) x (price change)
you need to compute
(# of contracts) x (price change) x (conversion factor).
Except, of course, for Australian Bond Futures. Don't even get me
started on those...
Of course, with futures the value of the instrument doesn't change per
se; instead, your account gets "marked to market" daily reflecting the
profit/loss you would face associated with delivery of the contracted
goods due to the difference between the contracts price and the
current market price. Another strange bit of accounting that it would
be nice to be able to handle.
-JT
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