Capital and Portfolio Risk · Futures Trading Guide
Diversification depends on common drivers rather than the number of symbols. Futures portfolios can hide a concentrated exposure behind several different contracts.
Group positions by economic driver
Long equity indices in several countries may all depend on global risk appetite. Several energy products can respond to the same supply shock. A short bond position and a currency position may share sensitivity to changing rate expectations. Map the driver behind each trade before counting it as diversification.
Compare gross and net measures
Suppose a hypothetical portfolio is long $100,000 of index A and short $100,000 of index B. Net notional is zero, but gross notional is $200,000. If A falls 4% while B falls only 1%, the long loses $4,000 and the short gains $1,000, leaving a $3,000 loss. Zero net notional did not eliminate relative exposure.
Use correlation as an estimate
A historical correlation depends on the return interval, sample and market regime. It may rise during stress or reverse after a structural change. A covariance model can be informative, but a small modelled volatility is not proof of safety. Test named scenarios directly and include the settlement currency of each position so exchange movements do not disappear from the worksheet.
Set portfolio limits that match the risks
Track risk by market family, strategy, currency, broker and settlement date. Limit aggregate intended loss as well as contract quantity. Review whether several stops could trigger into the same weak liquidity. Keep a cash view alongside an economic exposure view because daily variation and available collateral determine whether a position can actually remain open.
Try it yourself
Three separate index trades each allocate $100 of intended stop risk. They respond to the same announcement. What should the portfolio review consider?
Show the worked answer
At least $300 of simultaneous intended risk, plus a stress allowance for gaps, slippage and changed correlations. Three labels do not create three independent outcomes.
Further reading
- CME Group: Position and risk management
- CME Group: Hedging with equity index futures
- CME Group: Futures trade plan
Educational material. Prices, margins and strategy examples are hypothetical unless explicitly identified as contract specifications. They are not trade recommendations. Futures losses can exceed deposited collateral. Product terms and eligibility vary by venue and jurisdiction.
