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Quote Type

The program calculates everything in terms of a default currency.  This should be the currency you are evaluated in.  If all your assets are also quoted in this currency, then you do not have to bother with exchange rates.

If you are managing a multi-currency portfolio, you should first define the exchange rates.  The program accepts currency quotes with two quotation conventions: foreign/domestic or domestic/foreign, where “domestic” is the default currency.

Once you define a currency, it appears in the “drop-down” menu under “Underlying Currency.”  For every security you add, you can specify the currency it is quoted in, which allows you to easily handle multi-currency portfolios. 

Currently, the program accepts quotes for securities whose price is quoted (such as stocks or options), securities whose quotes are either in the form of the US Treasury bill (a discount yield) or the US Treasury bond (the “clean price” of a coupon paying bond). It converts the quote into a price when you trade, as follows:

·         Price quotes: No additional information about how to convert the quote to a price is needed

·         T-Bond Quote: You need to fill in the specifics of the bond to calculate the accrued interest.  The critical pieces of information are:

·         The coupon rate

·         The previous coupon date

·         The next coupon date

·         The number of times a year a coupon is paid

·         The tick size for the quote; several bonds are quoted in 32nds.

You are also asked to enter the maturity date; this is not necessary to calculate the price, but is specified for completeness.  It will also be used in the future to calculate values such as the yield to maturity, the duration, and so on.

·         T-Bill Quote: You need to specify the maturity date of the bill.  You should make sure that the date on your computer is correct.

Futures: Select futures if the contract is a forward or futures contract.  You need not specify the maturity date of the contract. 

Buying and Selling Futures

When you buy or sell a futures contract, no cash changes hands, but your obligation is calculated and stored by the program.  For example, suppose that the current bid on a futures contract is 5 and the current ask is 6.  If you buy one contract, you agree at the maturity date to receive the underlying asset and pay 6.  Your obligation then is –6.  If you close out the contract by selling the contract, you incur another obligation: to deliver the underlying contract and receive 5.  So your future obligation is now –1.   You can view this from the View menu after clicking on the name of a futures contract:

This obligation is stored until you mark to market.  Typically, you should mark to market every day; the menu item “Mark All Futures to Market” under the Securities menu does this for you.  At this time, the future obligation is added to or subtracted from your cash.

Carrying a futures position forward in time

Suppose you bought one futures contract yesterday at price 6.  You obligation carried forward is –6.  Suppose today the bid is 3 and the ask is 4.  If you mark to market, the following happens:

·            First, you sell the contract at price 3, so you now have no contracts and your future obligation is –6+3 = -3.

·             This amount gets subtracted from your cash immediately.

·              You buy back the contract at the ask price, which is 4, so your new obligation is –4.

When the futures contract matures

When the contract matures, you can close out your position in one of two ways: either buy or sell on the last day so that you have a zero position, and then mark to market the contract, or manually mark the contract to market. 

The former is what we described before, and is the recommended way.

The latter is useful if you cannot find a settlement price easily, e.g. a few days after the contract has matured.   This is described in the section on Trading (below).