Cost of carrying futures

[cutetrader]

Can some experts please guide me if there are any interest or any other costs to hold a Future Position.

Example -
I buy 1 ES on Jan 1 and sell that on Feb 1 , will my broker charge me any interest (Like we pay when we short stock) since I only invested around 5K for this OR will I just pay commissions and nothing else?

I am using IB.

 

[eastern_warrior]

Can some experts please guide me if there are any interest or any other costs to hold a Future Position.

Example -
I buy 1 ES on Jan 1 and sell that on Feb 1 , will my broker charge me any interest (Like we pay when we short stock) since I only invested around 5K for this OR will I just pay commissions and nothing else?

I am using IB.

Futures essentially are = spot + interest less dividends.
The interest is factored into the price.

 

[Robert Morse]

No interest. You are not buying on "margin" with borrowing. You have to have the funds for the CME margin requirement. Even a short future is not a borrow of someone else future that you need to deliver like an equity.

 

[2rosy]

def coc (F,D,S,t):
    """
    F = S * exp (r*t) - D.
    So, r = ln((F+D)/S)/t
    Where F - Futrues price
    S - spot price
    r - cost of carry
    t - time to expiry
    D - dividends to be paid during the life of the futures contract or storage cost
    """
    return np.log((F+D)/S)/t

 

[algofy]

def coc (F,D,S,t):
    """
    F = S * exp (r*t) - D.
    So, r = ln((F+D)/S)/t
    Where F - Futrues price
    S - spot price
    r - cost of carry
    t - time to expiry
    D - dividends to be paid during the life of the futures contract or storage cost
    """
    return np.log((F+D)/S)/t

What? None of this makes sense...the answer to the OP question is no, there is not a cost of carry. Why do people around here make things so difficult? Is it a lack of knowledge?

 

[algofy]

OR will I just pay commissions and nothing else?

Yes, this.

 

[nonlinear5]

Can some experts please guide me if there are any interest or any other costs to hold a Future Position.

The short answer is "No". You will not be charged any interest or any fees (beyond the commissions) by your broker.

The long answer is "Yes". The interest that you pay is implicitly in the price of the future, and it has to do with the so-called "cost of carry", which depends on multiple factors, such as remaining time to expiration and prevailing risk-free interest rate. The answer becomes even longer in case of commodity futures (such as oil, grains, metals, etc), where storage costs become part of the pricing equation, and the terms like "demurrage" and "contango" enter the picture.

 

[xandman]

What? None of this makes sense...the answer to the OP question is no, there is not a cost of carry. Why do people around here make things so difficult? Is it a lack of knowledge?

Research on Commodity futures indicate that roll yield can constitute half of the total return. The broker does not charge a cost of carry, but the market will.

This is the formula found in 2Rosy's calculator: r = ln((F+D)/S)/t

Most of it is just comment lines between """ and """ to explain each variable. A very efficient explanation.

 

[algofy]

Research on Commodity futures indicate that roll yield can constitute half of the total return. The broker does not charge a cost of carry, but the market will.

This is the formula found in 2Rosy's calculator: r = ln((F+D)/S)/t

Most of it is just comment lines between """ and """ to explain each variable. A very efficient explanation.

Yes I understand longer term roll issues but OP was asking about additional fees such as interest.

 

[Overnight]

Can some experts please guide me if there are any interest or any other costs to hold a Future Position.

Example -
I buy 1 ES on Jan 1 and sell that on Feb 1 , will my broker charge me any interest (Like we pay when we short stock) since I only invested around 5K for this OR will I just pay commissions and nothing else?

I am using IB.

Taking your question at face value, and assuming nothing but a futures contract with no options or other hedging, and not considering contract expirations, then the only response here that matters is what Old Man Morse posted. You pay nothing but commissions/fees on the entry and exit.

There is one sticky bit however. As of this timestamp, the margin requirement to hold a long-term (overnight) contract in ES is $5,225 per CME guidelines. Assuming that was the same requirement for your contract month at the time, your position would be liquidated if your 5K account cash plus value of contract at time of daily market settlement was not greater than $5,225.

Ergo, at the market close, if your contract was down $100, your NLV would be $4,900. That does not meet the $5,225 threshold, so you would lose $100 from your account when your position is liquidated. If your contract was up $100, your NLV would be $5,100. That does not meet the $5,225 threshold, so you would gain $100 in your account when the position is liquidated.

If your contract was up $500 at market close, your NLV would be $5,500, so you meet the $5,225 threshold. Your position would not be liquidated.

Granted, your particular broker would be able to give you the true details about this very scenario, for they may have different risk requirements above and beyond the CME guidelines. So the best bet to get to the truth would be to call your broker (in this case IB) and just ask them.