What Is an Outright Futures Position?

An outright futures posit𝓡ion is an unhedged futures trade that is taken on its own and ꧂is not part of a larger or more complex trade.

Understanding Outright Futures Positions

An outright futures position is a long or short trade that is not hedged from 澳洲幸运5官方开奖结果体彩网:market risk. Both the potential gain and the potential risk are greater for outright positions than for positions that are covered or hedged in some way. An outright position is one that stands on its own and is not part of a larger or more complex trade. A profit is made from a long outright futures position if the price rises following the purchase, or from a short trade if the price falls after th🍸e short is initiated.

An outright position is one that is a pure long or short bet on the direction of the 澳洲幸运5官方开奖结果体彩网:futures contract. Hedging or offsetting that position with another position means it is no longer an outr🗹ight position.

Outright futures are also called naked futures because they leave the investor exposed to market fluctuations. To reduce risk, the investor may choose to purchase a protective 澳洲幸运5官方开奖结果体彩网:offsetting option, an offsetting position in the futures' underlying security, or an opposite position in a related market. Hedging or offsetting the risk means it is no longer an o✅utright futures pꦡosition.

An outright futures position is inherently risky because there is no protection against an adverse move. Most traders do not consider trading liquid futures contracts to be excessively risky, especially because in most cases it is easy to cover or to sel💮l the position back to the market. Most speculative positions in the futures market are outright positions.

However, a declining market for an investor holding a long position in a futures contract still has the potential to deliver significant losses. In this case, holding a 澳洲幸运5官方开奖结果体彩网:put option against the long futures position could cap losses to a manageable amount. The trader's profit potential would be reduced by the premium, or c🔜ost, of the option. Consider it to be an insurance policy the trader hopes not to꧂ use.

Traders selling futures short without a hedge face even greater risk since the upside potential for most 澳洲幸运5官方开奖结果体彩网:futures markets 🍷is theoretically unlimited. In this case,ꦉ owning a call on the underlying futures contract would limit that risk.

Another alternative to an outright futures position that can sometimes carry less risk is to take a position in a 澳洲幸运5官方开奖结果体彩网:vertical spread trade. This caps both profit potential and risk for loss, and it would be a good choice for a trader that only expects a limited move in the underlying security or 澳洲幸运5官方开奖结果体彩网:commodity.

While all the above limit risk, they also tend to limit or ♎reduce profit. Many speculative traders prefer outright futures positions because of their simplicity (one position) and the ability to generate larger profits when a trade is well-timed and takes advantage of an ensuing price move.

Outright Futures Position Example

Assume a trader believes that the 澳洲幸运5官方开奖结果体彩网:S&P 500 is going to rise over the next several months. It is currently July, so the trader buys a December contract of the E-Mini S&P 500 listed on the Chicago Mercantile Exchange (CME) under the symbol ES.

The trader uses a 澳洲幸运5官方开奖结果体彩网:limit order to enter a position at $4321, buying one contract. This particular futures contract moves in 0.25 increments, with four increments—called ticks—to each point🅠. Each tick is worth $12.5♚0 in profit or loss, and each point is worth $50 (4 x $12.50).

This posi🃏tion is a pure directional bet on the price of the futures contract rising. The trader is not taking any other positions to offset the risk or magnify the profits associated with the position. Therefore, this is an outright futures position.

Assume that in one month the price of the contract is at $4351. The trader is up 30 points or $1500 ($50 x 30 points), less 澳洲幸运5官方开奖结果体彩网:commissions. Subsequently, the price dr♕ops to $4311. The trader is down ten points, or $500 ($50 x 10 points).

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