Futures Full Contract Value

Futures Full Contract Value - Definition

Futures full contract value is the total value of assets covered by a futures contract.

Futures Full Contract Value - Introduction

The full contract value (FCV) of a futures contract, or simply known as Contract Value, is simply the total value of assets covered by the futures contracts that you hold. It is an important value to know because not only is the initial margin of a futures position calculated as a percentage of the full contract value, the full contract value of your futures positions is the price you must be ready to pay for the underlying asset should you go long and hold a physically delivered futures contract all the way to expiration.

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How Is Full Contract Value Calculated?

Futures Full Contract Value is simply the total units of assets covered multiplied by the prevailing price of the futures contract.

Single Stock Futures Full Contract Value Example:
Assuming you are long on 10 contracts of AAPL's SSF May 2010 trading at $254.

Full Contract Value = (Number of shares covered by each contract x prevailing futures price) x number of contracts

Full Contract Value = (100 x $254) x 10 = $254,000

Yes, full contract value is calculated based on the futures price of the futures contract that you are trading instead of the spot price of the underlying asset because full contract value really refers to the total value of asset that is to be traded at the price agreed in the futures contract and not what the price of the underlying asset is right now.

Full contract value calculation for index futures is based on the same concept except that instead of the number of units, the cash value of the index is used.

Index Futures Full Contract Value Example:
Assuming you are long 10 contracts of S&P500 e-Mini June 2010 trading at 1131 points.

Full Contract Value = (cash value x futures index) x number of contracts

Full Contract Value = ($50 x 1131) x 10 = $565,500

Two Main Purposes of Full Contract Value

There are two main purposes in knowing the full contract value of the futures contracts you are holding; One, to calculate the total initial margin needed for a position and Two, to estimate how much cash to prepare for taking delivery of the underlying asset.

The initial margin requirement for each futures contract is usually stated as a percentage of the full contract value. This is due to the fact that you are paying a small percentage of the full value of the assets covered in order to secure the deal for the future.

Calculating Initial Margin from Full Contract Value Example:
Assuming you wish to be long on 10 contracts of CBOT Wheat Futures with a 12% initial margin requirement trading at 469 cents per bushel.

Full Contract Value = (contract size x futures price) x number of contracts

Full Contract Value = (5000 x 469) x 10 = 23,450,000 cents = $234,500

Initial Margin = 234,500 x 12% = $28,140

Please note that the ultimate price that you should be paying to take physical delivery on your futures contract is determined by the final settlement price determined after expiration, that's why the full contract value at any time only reflects a rough estimate of how much money you should prepare for taking delivery.

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