Q:

Mechanics of futures contracts: with respect to which time reference is the variational margin calculated?

Consider the following situation. My futures exchange, Futures Inc., is open for business 9AM till 5PM EST. A few days ago I assumed a long position in a futures contract, $C$, on one unit of some underlying asset $A$, to be delivered at time $T$, two months from today. Futures Inc. releases price quotes on futures on $A$ every hour.
Now, suppose at 9AM the quote on futures on "$A$ with expiry date of $T$" is $1$ USD, and at 10AM the quote on the same kind of futures has risen to $3$ USD. At 10:05AM I decide to sell $C$ and promptly sell it for $3$ USD. At 11AM the quoted price is goes up to $4$ USD and at the end of the day, delivery price of futures on "$A$ with expiry date of $T$" is $5$ USD.
Now here are my questions, pertaining the changes in my margin account following this trade.

When do I see a change in my margin account? Just after the sale, at 10:05AM? Just after the next time tick, at 11AM, or just after the end of the day, at 5PM?
What will be the change in my margin account?
(a) $0$ USD - I have sold the contract, so I don't have a margin account any more,
(b) $1$ USD - the difference between the quoted price at the two time ticks between which the sale took place,
(c) $2$ USD - the difference between the last quoted price at the time the sale took place and the quoted price at the beginning of the trade day,
(d) $3$ USD - the difference between the quoted price at the next time tick following the sale and the beginning of the day,
(e) $4$ USD - the difference between the quoted price at the end of the day and the quoted price at the beginning of the day.
Am I eligible to withdraw the funds in my margin account? If so, when can I do it: just after the sale or after the end of the trade day?
What will be the change in the margin account of the person I sold $C$ to at the end of the day,
(a) assuming this person holds on to $C$?
(b) if they sold $C$ out prior to 4PM?

A:

Without getting into all your detailed questions: when you sell a futures contract that has appreciated you have for all practical purposes made money. The computer systems for your broker, your internal systems (and your boss!) immediately recognize that. However it is true that the money is not going to hit your account immediately. You are owed some money but do not yet have it in hand. The futures industry clears trades once per day, so your money it will not be in your account in a bank in Chicago until the evening of that day. This avoids having to move money all day long between accounts as trades occurred. But this is a minor detail for most purposes, and I would not worry about it unless you are an accountant or government regulator involved in the details of how the system works. Just be confident that by the evening you will receive an amount proportional to the difference between the price you sold and the settlement price the day before. HTH

