Futures modelling

This page explains how variation margin is handled in relation to futures contracts used on the SigTech platform.

Units on the SigTech platform

Futures positions on the SigTech platform are held in number of units, which is not the equivalent to contracts or lots. When a position in a futures contract is initiated, the number of units are derived from the following formula:

$$\mathrm{Units}_{Future} = \dfrac{\mathrm{Notional}}{\mathrm{Strike}_{Future}} \times {\mathrm{Weight}}$$

$\mathrm{Strike}_{Future}$ is the close price of a price bar, open-high-low-close, where the time frame on the bar is dependent on the strategy being used.

$\mathrm{Notional}$ is the nominal value of the position, for example expressed in US Dollar.

$\mathrm{Weight}$ is the percentage of AUM which the strategy aims to allocate.

Valuation of a position

Once a future position has been entered into, the valuation of that position, in US Dollar, can be expressed with the following formula:

$$\mathrm{Valuation}_{USD} = \mathrm{Price}_{Future} \times \mathrm{Units}_{Future} \times \mathrm{FX}_{USD}$$

$\mathrm{Price}_{Future}$ is the latest close price available at a given point in time.

$\mathrm{Units}_{Future}$ is the number of units held in that asset.

$\mathrm{FX}_{USD}$ is the exchange rate from contract currency to US Dollar.

Valuation Offset of a futures position

Since the valuation of a futures position is calculated in accordance with the above formula, the position has a non-zero valuation at inception—an offsetting position needs to taken for the portfolio to be valued appropriately.

In light of this, the SigTech platform uses a Margin Spot Account to create an offsetting position with a valuation of the inverse of the futures position. The following formula is used to calculate the offsetting margin position:

$$\mathrm{ValuationOffset}_{Future} = -\mathrm{Units}_{Future} \times \mathrm{Price}_{Future}$$

Valuation adjustments

When dealing with futures contracts, the investment strategies apply valuation adjustments on a continuous basis, such as daily, which includes adjusting for variation margin or mark-to-market. The valuation offset gets applied by crediting/debiting the valuation offset and debiting/crediting the portfolio cash account if a futures position increases/decreases in value.

Example valuation offset

Note: unless otherwise specified 'CASH' positions accrue interest overnight at the Central Bank level for the designated currency. In this example 'CASH' is set to not accrue interest, this can be achieved by applying total_return=False to your strategy.

Day 0

Investment portfolio is empty apart from a USD 1,000.00 cash position.

Day 1

Researcher seeks 50% exposure to CLZ15 COMDTY, which currently trades at USD 100.00. The investment portfolio at inception of the trade:

Asset	Valuation (USD)	Units	Value (USD)
CLZ15 COMDTY	500.00	5.00	100.00
CLZ15 COMDTY VALUATION OFFSET	-500.00	-500.00	1
Cash USD	1,000.00	1,000.00	1

Strategy NAV: USD 1000.00

Day 2

The price for CLZ15 COMDTY moves to USD 105.00. The investment portfolio before the valuation offset is applied:

Note: this intermediate step is not displayed in the portfolio methods—it is for illustration purpose only.

Asset	Valuation (USD)	Units	Value (USD)
CLZ15 COMDTY	525.00	5.00	105.00
CLZ15 COMDTY VALUATION OFFSET	-500.00	-500.00	1
Cash USD	1,000.00	1,000.00	1

Strategy NAV: USD 1025.00

The investment portfolio after the valuation offset is applied:

Asset	Valuation (USD)	Units	Value (USD)
CLZ15 COMDTY	525.00	5.00	105.00
CLZ15 COMDTY VALUATION OFFSET	-525.00	-525.00	1
Cash USD	1,025.00	1,025.00	1

Strategy NAV: USD 1025.00