Does money actually change hands trading futures?

1. Assuming that the asset underlying a futures contract pays no dividends or related (storage, etc) costs, I have the following formula for the price F_t of a futures contract at time t:

F_t = S_t * e^r (T-t)

where S_t is the value of the underlying asset at time t, r is the risk-free rate, and T is that the contracts delivery date.
Suppose that F_t lt; 0. If I were to have a long position on this particular contract at time t at a real-world situation, would I immediately receive the sum F_t, or might hands change only?  Reply With Quote

2. I really don't understand your question but only as a note F_t cannot be negative because a price (S_t) is always positive and e^x gt; 0 for any x. The product of two positive numbers is positive.  Reply With Quote

3. Originally Posted by ;
I do not understand your question but just as a note F_t cannot be negative because a price (S_t) is obviously optimistic and e^x gt; 0 for any real xray The product of two positive numbers is positive.
Sorry, my mistake. I meant to state that should you a brief position on the contract (i.e. consented to make delivery of the underlying asset), in which case the value of the contract (for you) would remain negative?  Reply With Quote

4. Originally Posted by ;
I do not understand your question but just as a note F_t can't be negative because a price (S_t) is obviously optimistic and e^x gt; 0 for any x. The product of two positive numbers is positive.
Also, unlike an options contract, certainly the value of a future might be positive or negative - because the payoff might be either. In case, upon the shipping date, the price of the asset has fallen, you would be obliged to cover the difference? Does this mean that the formula mentioned above is incorrect? Should it instead have been

V_t = F_0 - S_t * e^r (T-t)  Reply With Quote

5. Price is favorable. Worth might be negative. Everything is right: V_t = F_0 - F_t = F_0 - S_t * e^r (T-t) (for long position). It will be -V_t for brief in this circumstance. Originally Posted by ;
If, upon the shipping date, the price of the underlying asset has dropped, you'd be obliged to pay the difference?
That is how most of the futures operate nowadays, you pay the difference which is more convenient.  Reply With Quote

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