The speculator will incur a loss of $1,937.50 on this long position.
In speculation, long position is a situation where an investor or speculator purchases a financial asset such as stocks, commodities or currencies with the expectation that its price will rise over time.
Given that:
- Entry price = USD 1.3094/EUR
- Exit price = USD 1.2939/EUR
- Contract size = EUR 125,000
The profit or loss on the Long Position is solved as follows.
Profit/Loss = (Exit Price - Entry Price) * Contract Size
= (1.2939 - 1.3094) * 125,000
= -0.0155 * 125,000
= -$1937.50.
The full question is:
Suppose a trader takes a position on June 5th 2021, in one September 2021 EURO (EUR) future contract at USD1.3094/EUR. The trader holds the position until the last day of trading when the spot price is USD1.2939/EUR. This will be the final settlement price because of price convergence. The trader has EUR125,000 for this investment.
If the trader had a long position and he was a speculator, calculate his profit or loss for the position above.