A point balance is a statement prepared for an investor who holds open positions in a futures contract. The statement shows how much profit or loss the investor would make if the position had to be settled at current prices. Although the figures are entirely artificial and hypothetical, a point balance can give some insight into whether the final outcome is likely to differ wildly from the investor's original expectations.
A futures contract is an agreement by which an investor agrees to buy or sell a security or other asset at a fixed price on a fixed date in the future. In many cases, the market price for the security will be different from this fixed price on the fixed date. This disparity will usually mean one party in the agreement winds up making a profit, while the other will face a loss, though the buyer may be able to hold on to the security and wait for the market price to recover to make up the losses.
There are several reasons why people take out futures contracts. In some cases, it is simply a gamble in which they make or lose money depending on how well they have predicted the movements of the market price during the contract period. In other cases, it can be used for hedging. A company that stands to make or lose a lot of money on one investment might take out a futures contract in a contradictory position, meaning it makes some money back if the original investment goes badly.
One of the most significant elements of a futures contract is that the potential losses or gains can be unpredictable because the transaction date is fixed and the investor can't always simply wait for the market to move in a more favorable position. The seller will usually not own the security when the original deal is made, and will simply buy it either in the meantime or immediately before the contract expires. The buyer will not know whether it will be possible to sell the security at a profit immediately, or if he or she will have to make the payment and then wait before making some or all of their money back.
The point balance helps to keep track of the potential for losses or gains. It is usually provided by dealers who manage multiple investments for clients. The point balance shows the profit and loss of each futures contract investment based on the official closing or settlement prices of each contract. This is the final price for all the contracts that come due during the month.
It's important to note that the point balance doesn't refer to completed deals, but rather open positions. These are futures contracts that have yet to expire. The point balance simply shows how much money the investor would have made or lost had the contract expired that month. This means the statement doesn't tell investors how much money they will wind up making or losing, but rather gives some indication of price movements during the month and thus whether strong or weak profits or losses on the investment are looking more likely when it really does expire.
