Calculating the gain or Loss in a Futures contract can be done easily by Multiplying the total movement of the Underlyig asset in Tick SIze to the Lot size. For example, if the Total tick Movement is 4 and the Lot size is 200 then the Profit is 200 X 4 = 800. By this way the Profit or loss is calculated. Futures are settled in MTM (Mark to Market) P&L at the end of each day to keep the value fo the contracts accurate.
Futures Contract-
Futures contracts are a part of Derivatives that consist of the underlying security which is traded on Stock exchanges. Futures is a Legal agreement between the Buyer & Seller to exchange the underlying security on a Future date at a Pre-determined price.
Futures contracts can be held for 1 day in Intraday trades or can be Held for positional trades till the expiry.
If one holds the Future contract till the expiry then there is an obligation to the Buyer of the Futures Contract to Buy the underlying securities at the pre-determined price and the seller of the Contract to sell those securities at the predetermined price.
Calculating Gain or Loss-
The Profit or Loss in a Futures contract is calculated in MTM (Mark to Market) Profit or Loss. The Holder of a futures contract can calculate the P&L by Multiplying the movement of the Underlying security (Tick size) by the Quantity of the Futures. The Profit & Loss incurred during the day is settled at the end of the day as MTM profit or loss and is adjusted from the cash balance of the individual’s trading account. This settlement is done daily till the last settlement of the series which is the expiry day for these contracts.
Example- If one has gone long in ACC Futures at 1050, and the price is 1052.5 after some time, Then the Profit will be (1052.5 - 1050) (2.5){Total Tick Size} multiplied by the Lot size which is 500 in this case.
Therefore The total gain will be- 2.5 X 500= 1250 Rupees.
Every individual security has its own unique LOT size and by the movement in the Tick size, the total Gain or Loss can be calculated in the particular scenario.
Hence a simple formula to calculate the Profit &Loss for Futures is (Tick size X Lot size). By this, the P&L of any contract can be found easily.
For positional traders, the Profit &Loss at the end of each day is adjusted till the position is squared off by the trader. In this way, the original value of the Contract can be calculated accurately.