 Hello. Good evening, investors and attendees. Good evening from Beirut. I hope all are doing well. Once again, my name is Ali Hamadi. I am doing the Tick Mill webinar series for the introduction to futures and how they operate and the use for them in the marketplace. I hope everybody has had a good last couple of weeks since we last spoke and had the opportunity to have our last session. As a build-up into tonight's evening, once again, my name is Ali Hamadi and I've been in the financial markets for 18 years plus. I work for Merrill Lynch and a private investment bank and other investment firms throughout my career. I am providing this introduction series and webinar series for Tick Mill so that you have a better idea of how this particular product, this particular product and products are of use to you and your investment portfolio. That being said, before we get into tonight's section or series, we'll be discussing valuation and what the Tick value and pricing methods and how they're used for the products. The first series, if you recall, we were discussing on what futures are, which are an obligation. They have a specific expiry date and at that particular expiry date, which is the third Friday of each month, there will be in this case, in most cases, a cash settlement process. In the second series, we discussed the use of how futures products are used within the capital markets for hedging purposes and or speculative purposes. That being said, let's get started with tonight's webinar series. We're going to be discussing the value of futures contracts, the tick value and the valuation and so forth. The most important thing to know that we want to discuss and have everybody understand is that the size of the contract can have a considerable multiplying effect on the profit and loss or loss of a specific futures contract. Before entering the position in the futures market, it is critical that you understand how many price fluctuation or market volatility affects the value of your open trading position and consider the average price move for the contract and the corresponding tick value to understand the size of typical moves and its value. Now, as you guys, if you have been following in the previous webinars, I don't like to read slide by slide, I like to keep things informal and have more of a dialogue effect so that you have a better, let's say, informal understanding and conversation of what's being translated and what's trying to be transmitted information wise. Therefore, now that you know that it can move and swing heavily, either way, for or against your position, what we need to understand now is how to use them and you need to have a strategy based on your review and research on the particular commodity indices, whatever if it's interest rate related, there's a lot of hot topics going on in the market just like it has been over the last few a couple webinars and the last couple weeks. Oil is still a hot commodity. Gold is a still hot commodity. The indices, the interest rate is straight for a hike last week, 25 basis points. Jerome Powell from the Federal Reserve United States government has come out saying he most likely will increase rates, 50 basis points the next session to aggressively attack and try to combat the inflationary effect that's taken on in the economic situation within the global markets. Tick Mill provides you, based on this review and research that I was just now discussing, depending on the commodity and or indices and or whatever instrument that you will be wanting to invest in, they will provide you charts that give you a move, you know, the market that's been moving over time and you can use a demo account to find your comfort zone and understanding before entering a live futures trade. So you can open up a demo account, you can do some research on a specific, let's say, one investment instrument or several. Do your research, look at the chart history, try to figure out and look and see where things are moving trend wise where they have been in the past in similar situations and that way you will have a better understanding of gauging what type of, excuse me, what position you would like to take and partake in. Now the contract unit, it's a standardized unit and it's unique to each future and these are all based depending on which type of futures contract you're involved in. So it can be based on volume, it can be based on weight and or a financial instrument depending on the contract of and the underlying product or the market. And for this particular webinar we'll be looking at and discussing the S&P 500, the crude oil which is CL within the futures markets and gold which is the symbol for GC within the futures markets. Now I have pulled up, I'm going to expand for you here and I've circled and outlined a couple of specifics just so that we can understand what we're looking at. Now if you look at the top I have three lines underneath this particular column called tick value and on the far left under the contract column I've circled in this particular chart a gold, silver and crude just for us to take a look at. Now the specifications which is the second or third column over tells you what it's based on whether it's weight, volume or depending on the indices what it's what the specifications are. So for instance gold if you look at gold here circled in yellow each contract is based on 100 ounces each futures contract is based on 100 ounces of gold and then if you look at the tick value this is what we're going to be discussing this evening this means if you see the $10 sign over 10 cents this means for every 10 cents that means 0.1 move within the gold price each 0.1 value or 10 cents value is equivalent to $10 okay. If you look at silver for instance which is based on 500 ounces each 5 cent move in price is equivalent to a $25 move up or down. In crude oil CL each contract is based on 1000 barrels of oil and you can see here for each one cent which is 0.01 okay move in the price of oil crude oil its value is worth $10 so this is I want you to understand the magnitude of looking at this particular chart here not chart but spreadsheet is that don't pay attention to all of the noise that you see just focus on the things that I've circled and underlined for you so that you understand that the magnitude and weight of how fast things can move in these particular markets and how fast things can move in value because when you're talking about a 10 cent move in gold and we all know gold recently has been moving quite a bit due to the circumstances over the last month of what's been taking on geopolitically and the flight to safety and the interest rates the interest rate hike etc etc each 10 cent move represents a $10 value and we know that gold for the most part can have larger moves than 10 cents per trading day same thing for as I mentioned we'll get us focused on gold and crude and the S&P 500 in this particular webinar if you look at crude oil it's been extremely volatile you'll see a chart later in this webinar that each one cent move is equivalent to $10 in value moving down we have another chart here let me give my picture out of the way and let me expand this one for you a bit so you can now see now these are other particular as you can see on this particular spreadsheet there are lots of choices that one investor can make regarding futures contracts what they can engage in and the the menu is is quite vast if you look in the blue here the dollar index it's 1000 times the dollar index that's how the specifications are valued at and each one cent move is also $10 worth of value if you're into interest rates futures trading treasury bonds the treasury 10-year note and the treasury five-year note each one of them are a hundred thousand in face value and you can see here each tick is 130 130 1 over 32 okay is considered one tick and each tick is valued at $31 and 25 cents if we move on down now to the S&P 500 which is also one of the three topics that we will be discussing or three futures that we'll be discussing this evening the S&P 500 is 200 is the specifications are $250 times the S&P 500 index and if you look at the index you'll always see a specific number and I can give you the specifications now for instance S&P trading today currently right now is at 4508 and at 4508 spot 12 it's saying for each for each 10.1 point basically 0.10 points within the S&P 500 move and the index is worth $25 okay get that a little smaller move to the next one here you'll also expand this one for you I know this is a bit repetitive but I want you to see how vast the market is and what's available within these markets so you have the mini NASDAQ you have the mini S&P which will go here which is valued the specifications are $50 times the S&P 500 index and each 0.25 percentage points or each 0.25 points in movement a equator point move in either direction represents $12.50 and us dollar value just here if you get into the agricultural side I've just circled corn randomly it's based on 5,000 bushels per contract and each 25 cent move up or down represents $12.50 and us dollars up or down okay now this was just for illustrative purposes to let you know how vast the futures market actually is and we're going to go now into what we discussed earlier the S&P 500 crude oil which is cl and gold which is gc now the minimum increment move which means it's got to move for the value to actually reach its tick value the S&P 500 the increment move is 0.25 now I've taken the December 2020 2022 futures contract as an example and its price at the time of creating this presentation was roughly around 4,473 spot 75 points so if you look at now the 0.25 minimum increment each time we look at this here this particular price each time this number right here moves up or down 25 points 0.25 it's equivalent to $12.50 in value if you look at the crude oil December 2022 futures contract remember its minimum move is 1 cent 0.01 and its tick value represents a $10 us dollar equivalent and it's currently trading at the time of this presentation roughly around $92.70 so you again then again look at this point here sorry you look to the right of the decimal point each time this 70 goes up to 71 72 73 or 69 68 67 etc represents a $10 move in value gold which is gc the December 2022 futures contract remember its minimum increment move is based on 10 cents or 0.1 its tick value is $10 and the futures December 2022 contract price at the time of this particular creation of the presentation was trading roughly at $1,948.60 and then again once again we want to focus on just right of the decimal point so each time this 60 turns into 0.7 0.8 or 0.5 0.4 etc represents a 10 us dollar value now what we want to look at just so we have just for informational purposes it closed yesterday Monday March 21st the S&P at 44 61 18 it's currently trading at 45 1178 so you can see the move that it's making today it's up plus 56 plus 50.6 from yesterday and you can see now where the values of the tick come in remember the S&P value the minimum increment is 0.25 or 20 I don't want to say 25 cents but it's 0.25 value per $12 and 50 cents the crude oil at the time of the information at the time of this making for March 22 which was today earlier crude oil was trading at 110 and spot 38.5 crude oil right now is trading at 109 spot 78 so you can see a downward move since the time of this making so now you can also calculate what type of movement would have happened depending on what type of futures contract you would have opened at this particular time what it would be doing within your particular portfolio. Gold at the time of this presentation making it today was trading at 19 24 83 currently gold is at 1980 so you can see you know a $5 drop remember gold if we go back and we look and see how gold is valued its tick price its tick value for gold is $10 per 10 cents so if you're looking at $5 you can now see what type of movement gold is providing and what type of value add or value loss profit or loss ramifications would have within your current portfolio. Now getting into this particular chart here which I'll expand for you this here is crude oil spot okay earlier today earlier today it was trading at 110 45 like I said now it's trading at 109 78 but if this is what I mean by doing your research looking at the charts this here is the month of February this is the beginning of the year this is prior which was trading in its range plus or minus between let's say 60 to $80 and then it started creating this this uptick on the geopolitical tension on on talks that obviously the sentiment market made their move and then when action was taken you can see the volatility that it created and the ramifications that it would have on futures contracts depending on which side depending on your portfolio first and foremost what are you doing if you're speculating and we're hedging if you're speculating you got to be very very careful and if you're hedging you need to which we'll discuss later in this presentation on how much you want to protect do you want to protect 100 percent of your portfolio or do you want to protect a specific percentage of your portfolio in these volatile times but you can just see in the month of March the wild swing that it's had where it's gone all the way up to a little closer of about 130 it's come all the way back down into the mid 90s and now it's back up to 110 and counting if we look at the May 22 futures contract price which I'll expand for you as well just for informational purposes is trading earlier today was trading at 108 spot 77 knowing that the price is slightly above that so you when you're looking at the price differentiation we mentioned last webinar you got not only just time value of money but you have cost of carry when you're dealing with commodities you have cost of carry you're talking about housing and storage you're talking about insurance you're talking about transportation these costs are all related and insulated and included in the price of the contract so this is why you'll see a price discrepancy between an actual spot price and what the time as time spreads out the difference in valuation of what the futures contract is trading at so this is the March sorry this is May 2022 is a crude price if you wanted it and then if we go down here you can see this is the December 2022 futures crude oil contract which earlier today was trading at 92 spot 39 then again it goes back it's dropped why well you've got from now till the end of the year and then again it goes to those different calculations the formula used when it comes to the cost of carry housing it delivery insurance etc etc those are all priced in the contract and then it gives you the price that you're looking at for as time goes on you minimize this so we can have a look see there we go now these are simple assumptions and valuations just to keep things simple we've discussed earlier in this presentation what tick values represent for specific items for within the futures markets from gold oil to indices we I even circled I even circled others for us to take a look at such as silver corn and agriculture the dollar indices and the interest rate markets etc etc but here's a simple assumption and valuation to provide the notional value okay so what what do I mean by this you take the contract unit times the contract price we'll give you the notional value contract unit is how many contracts you're going to have the contract price is the price that is currently trading out in the market and this will give you a notional value so for instance in a very simple example knowing that gold is not trading at a thousand but in this example if you have one gold futures trading at the price of $1000 and the contract unit is based on 1000 ounces sorry 100 ounces the notional contract value is calculated by multiplying the contract unit by the futures price so you take one contract times the is 100 ounces times $1000 which would be the price if that were the price would give you $100,000 if you were to take one futures contract of crude oil and if it were trading at 100 we know it's slightly trading above but just this is again a simple assumption the contract unit for one futures contract in crude oil is 1000 barrels so you would take the price of where it's trading at in the market in this instance or assumption $100 times 1000 for the 1000 barrels would give you $100,000 if you were to take one e-mini S&P 500 contract and if it was trading for instance at 2120 we know that the S&P 500 is trading currently now at 45 plus or minus 100 the multiplier for the the multiplier the specification for the E S&P 500 contract is $50 so you take $50 times the price of the S&P 500 and it would give you the $106,000 value now if it's trading almost double then you're looking at $212,000 but I'm just trying to keep things simple so that you can understand where the notional value comes from because I'm going to explain this here where we're going to determine how to use these contracts now if you remember the last webinar I was discussing you have speculation and you have hedging and hedging is used more so by larger institutions by larger portfolios for protective purposes so that excuse me if there is a position that for whatever reason they don't want to or can't let go of but they need to protect then they go into hedging mode from a speculation perspective if you're a retail investor and you feel the sentiment is moving one way or another to your liking then you're able to take a speculative position but you need to understand the ramifications based on each we're talking little bitty movements in price you're talking maybe one cent we're talking maybe 25 cents is equivalent to quite a bit or quite a sum of us dollar value and if it moves quickly you can then start to understand how it can add up and or induce heavier losses so from a hedging perspective if we look at it you have a 10 million dollar equity market exposure equity markets means stock market they could be in the s&p 500 in this case it is the s&p 500 that I put here but it can be the nasdaq it can be the new york stock exchange it can be any indices okay when it comes to the equity market or stock market but in this particular case how would we use a hedge for larger portfolios to protect positions that you may not want to let go of or you can't let go of for a particular reason so if you have in this case a 10 million us dollar equity market exposure or portfolio and within the s&p 500 how do you calculate the hedge ratio how are you going to know how many contracts that you need to protect yourself this goes to how much protection you want so let's just assume that I want to protect my particular position 100% meaning without fail regardless of what happens that I'm going to win on one side but I'm going to also when I win on one side I'm going to lose on the other and I'm going to have a net net zero but I still end up keeping my position okay head ratio is equivalent to the value at risk in this case 10 million dollars divided by the notional value which I just described in the slide earlier in this particular case the notional value that we used was 106 thousand dollars for one e-mini s&p 500 contract so now you have 10 million dollars in this particular portfolio that you want to hedge or protect you divide that by the notional value of 106 thousand and your head ratio comes out to 94 spot 33 so it's approximately let's just call it 94 contracts so if I wanted to protect this 10 million dollar portfolio exposure within the s&p 500 I would need to take out 94 contracts and I would be able to protect this particular portfolio 100% in theory now depending on the institution depending on the investor depending on the situation sometimes when they take hedge positions they may not hedge 100% sometimes they may only want to hedge 50% 60% etc it's up to the financial manager it's it's also determined by the financial investment policy of the institution of what they can or can't do when it comes to the retail investor it's up to that actual retail investor themselves to determine exactly how much they want to protect if they want to protect themselves at all to any type of movement against them and once you come up with that percentage it's easy to plug into this head ratio and say okay if I want to protect this particular position then instead of taking out 94 contracts I would take out 47 contracts basically you just take half now you've protected half your position within this particular example the key takeaways now what I want to make sure everybody understands is that futures contracts are not simple instruments they are if you understand them they are if you've done your research and they are if you know what you're doing but this is not something to play around with if you're not 100% certain or understand what you're doing because the movements can be quite big the swing can move for against you quite quickly and in big amounts now in the upcoming webinars that we'll be having from next week moving on forward we'll be discussing the initial margin you know we were discussing in previous slides $100,000 for gold and $100,000 for crude and $106,000 for the e-mini S&P 500 does that mean you're going to have to come up with that much notional value or notional money to actually get involved in that contract no this is where the margin comes in so you would have what they call an initial margin requirement which will be a percentage that you could take out on this given example I'll be able to get into more detail in the future webinar of the series of what the margin requirements would be so let's just say if the margin requirement were 10% on 100,000 then you could partake in a $100,000 notional value futures contract at the price of $10,000 within your portfolio and any price movement that takes place within the market obviously will affect your position so this is where hedging can come in and or depending on your sentiment based on your research based on the trend based on what's taking place in the market like I said there's a lot of movement there's a lot of noise there's a lot of uncertainty based on the recent interest rate hike of 25 basis points last week talks of 50 basis point rate rate hike in the upcoming federal reserve meeting and then after that you've got the crude oil which is volatile still based on the geopolitical tensions and issues going on between Russia and Ukraine and then you also have the going back to the interest rate you're talking about you know the treasury markets what's happening now with the treasury markets inflation is at an all-time high in the US and Jerome Powell the Federal Reserve Chairman of the United States is hellbent on tackling inflation I mean I just read a report today that their concern right now is less focused on the job and labor market and more focused and more driven towards tackling inflation so that it doesn't get out of hand in my opinion this is not advice in my opinion it already has left the building inflation is already at an all-time high and if they're going to take this seriously like I read today then we can see another 50 basis point rate hike coming up in the next announcement but after that between now and years in we could see another maybe 100 basis points plus or minus so those will have ramifications on what on the actual equity markets on the interest rate markets and then depending what's happening with the geopolitical tensions between Russia, Ukraine, Iran and China and the region there are a lot of moving variables at play that will affect these markets in a volatile way so this is goes back to one of the early slides of this presentation it's extremely important to understand where your interest lies Oishi so the key takeaways the ability to find the direction you know what first of all what it is that you want to invest and trade in with futures Oishi Tanishi within the direction is what's your sentiment based on the research the research is your sentiment bullish or bearish then you decide how much you want to partake in understanding the value or the tick value in price movement and what type of effect it will have and a dollarized amount to your actual portfolio second when to enter the market you have to base your strategy first and foremost on which particular segment you want to enter in is it indices is it interest related is it commodities etc etc from there when do you want to enter the market no one can time the market perfectly it's impossible to say when the high point is and when the low point is on any specific stock commodity agricultural interest rate linked instruments it's impossible so you have to understand where you feel confident and comfortable as your entry point when you want to take that position based on charts that are available through TIKMO you'll be able to look you can go back you'll be able to see when can it in the future 30 years 60 years 50 years 10 years when can it by then you can also do research based on similar let's say crises that are in the market now and is regarding inflation and interest rates are of interest to you inflation is now at its highest point to the united states within the last 40 years so 40 years ago and take a look at what happened and what the Fed did at that point in time and see if this is something that you're able to find your direction based on your strategy when you want to enter and then this leads us into the third point no win to set your stop loss you have to know and accept that you're not going to quote unquote win every single time it's not possible but if you are if you understand what you're getting into and you understand direction at for the most part you have a good pulse on Shambassir Basu Kamena it can also go against you so you need to know when to cut your losses the market the market the market never never never will respond to your wishes regardless of who you are you can go to bed thinking man I need the market to move up I hope it moves up the market doesn't care about you it doesn't care about me the market's the market and as long as you understand that and that you understand that you are one of many players in the market and then you understand when you're able to accept and cut losses and move into your next trade then you'll you'll be a much better trader and have a much better pulse on the market from past experiences then leading on to the last takeaway don't be greedy greed is muffy and look greed is greed and it runs across all sectors of life and we all know what greed can do to people um in any context shape or form that's when we're talking about in the market specifically itself when you take a particular position and you see that particular position um titler or enter you've taken a bullish position and you're seeing your portfolio increase in great amounts you've got to have the discipline to say this is my time to get out okay you have to have your exit on profit as well not just a stop loss but you have to also have the confidence and the discipline to understand that it's not going to continue moving up for you until you decide to get out or until the expiry date of your particular future and at the same time if you're bearish it's not going to continue to move down for you the whole time way down so know when to cut your losses and know at the same time when to say okay this is my exit point it may go up another a good few ticks a good few points you have to understand I've I've taken my profit you go back you go back to the drawing board you put your pulse you put your research into what's taking place in the market at that particular time and then you recycle and you repeat and you keep going through the same steps what direction you got to move in in which particular sector make up your mind do your do your research on the charts have a good pulse on the market take your position and then from there say okay there's my loss I'm willing to accept on this particular position fiat kuhn hon and I want my gain here is an islet actor you're going to say I'm glad I had my stop loss is a toilet actor that's opportunity cost that I've lost out on but at the same time you're still profitable and then you do what you repeat go through the same cycle and keep moving on faster not only last and but not least just a simple quote from john c bogel he was basically he founded and was the CEO of the vanguard group which is a very large financial firm mutual fund from the united states very plainly put as vanguard and his famous quote is don't look for the needle in the haystack just buy the haystack okay so if you put that in context of how this relates to futures he's talking about a specific if you want if you're looking for the next let's say apple or microsoft in a particular stock and you know which indices index it's trading in he's saying go ahead and buy the whole index which you can do through either mutual funds etf cfds futures as well plus in a broader context he's talking about if you know which direction you're moving at whether it's an agriculture whether it's in commodities whether it's an energy whether it's an interest rate related futures or indices related futures and you understand okay when's the next move coming take your position and be confident in the research that you've done okay there's going to be a lot of talk there's going to be a lot of chatter about what to do what not to do for every article that you read about a bullish xyz you're going to find the same amount of articles that are bearish on xyz so who are you going to believe who do you trust you have to first and foremost do your own research go back to looking at charts i'm not i'm not i'm not saying being a technical trader i'm talking about for futures themselves they have a very specific purpose in the markets they are complex and they can provide lots of added value if you're able to understand how to use them so with that being said this was this concludes today's webinar on the valuation of of futures contracts we discussed the s&p 500 gold crude oil i gave you a spreadsheet as well that i highlighted on others and i'm opening up now if anybody has any questions please go ahead and send them my way so that i can give you some some answers if i have the answer and we'll go from here any questions okay so no questions going once going twice all right jamia thank you again for your time happy to speak with everyone again here here comes one you're very welcome thank you jennifer thank you for listening hannah you're also very welcome thank you for listening and everyone else and if you have any questions please don't hesitate to get in touch with tick mill they'll be able to direct you direct you to my email if you have any questions for me directly i'll be more than happy to help and assist we want to thank tick mill for having me and tick mill as one of the fastest growing and leading trading platforms as they expand in the futures market and my role in helping them helping you the investor understand how they are of use once again thank you for your time and we will meet again next Tuesday inshallah and continue our webinar series on the introduction to futures and how they are used within the capital markets thanks again and to spotluck it