Optimal Number of Contracts Solution

STEP 0: Pre-Calculation Summary
Formula Used
Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size
OC = (Δoptimal*NPH)/FCS
This formula uses 4 Variables
Variables Used
Optimal Number of Contracts - Optimal Number of Contracts refers to the ideal quantity of futures contracts to be traded to achieve a desired risk-reward balance or financial objective.
Optimal Hedge Ratio - Optimal Hedge Ratio is the proportion of a position in a hedging asset relative to the position being hedged, aiming to minimize risk exposure while maximizing effectiveness in hedging.
Number of Positions Hedged - Number of Positions Hedged refers to the total count of financial positions or investments that are protected against adverse market movements using hedging strategies.
Futures Contract Size - Futures Contract Size refers to the standardized amount of the underlying asset that the contract represents, typically stated in terms of quantity, units, or notional value.
STEP 1: Convert Input(s) to Base Unit
Optimal Hedge Ratio: 0.17 --> No Conversion Required
Number of Positions Hedged: 4500 --> No Conversion Required
Futures Contract Size: 250 --> No Conversion Required
STEP 2: Evaluate Formula
Substituting Input Values in Formula
OC = (Δoptimal*NPH)/FCS --> (0.17*4500)/250
Evaluating ... ...
OC = 3.06
STEP 3: Convert Result to Output's Unit
3.06 --> No Conversion Required
FINAL ANSWER
3.06 <-- Optimal Number of Contracts
(Calculation completed in 00.020 seconds)

Credits

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Created by Keerthika Bathula
Indian Institute of Technology, Indian School of mines, Dhanbad (IIT ISM Dhanbad), Dhanbad
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20 International Finance Calculators

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​ Go FRA Payoff = Notional Principal*(((Underlying Rate at Expiration-Forward Contract Rate)*(Number of Days in Underlying Rate/360))/(1+(Underlying Rate at Expiration*(Number of Days in Underlying Rate/360))))
Put-Call Parity
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Optimal Hedge Ratio
​ Go Optimal Hedge Ratio = (Standard Deviation of Changes in Spot Price/Standard Deviation of Changes in Futures Price)*Correlation of Changes in Spot and Futures Prices
Option Premium
​ Go Option Premium = ((Share Option Warrant/Number of Securities Per Option Warrant)+(Purchase Price*100/Price Security-100))
Balance of Financial Account
​ Go Balance of Financial Account = Net Direct Investment+Net Portfolio Investment+Asset Funding+Errors and Omissions
Annualised Forward Premium
​ Go Annualised Forward Premium = (((Forward Rate-Spot Rate)/Spot Rate)*(360/No. of Days))*100
Balance of Capital Account
​ Go Balance of Capital Account = Surpluses or Deficits of Net Non-Produced+Non-Financial Assets+Net Capital Transfers
Current Account Balance
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Uncovered Interest Rate Parity
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Covered Interest Rate Parity
​ Go Forward Exchange Rate = (Current Spot Exchange Rate)*((1+Foreign Interest Rate)/(1+Domestic Interest Rate))
International Fisher Effect using Interest Rates
​ Go Change in Exchange Rate = ((Domestic Interest Rate-Foreign Interest Rate)/(1+Foreign Interest Rate))
Optimal Number of Contracts
​ Go Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size
Relative Strength Index
​ Go Relative Strength Index = 100-(100/(1+(Average Gain during Up Period/Average Loss during Down Period)))
Bid Ask Spread
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International Fischer Effect using Spot Rates
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Theta
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Gamma
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Rho (Options Greek)
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Hedge Ratio
​ Go Hedge Ratio = Hedge Value/Total Position Value

Optimal Number of Contracts Formula

Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size
OC = (Δoptimal*NPH)/FCS

What is Optimal Number of Contracts ?

The optimal number of contracts in futures trading refers to the precise quantity that maximizes potential gains while effectively managing risk based on a trader's individual risk tolerance, trading strategy, available capital, and market conditions. This number is determined through careful analysis, considering factors such as profit targets, stop-loss levels, and overall portfolio diversification, and is subject to adjustment as market dynamics evolve. Achieving the optimal number of contracts is crucial for traders seeking to strike a balance between potential rewards and acceptable levels of risk to attain long-term trading success.




How to Calculate Optimal Number of Contracts?

Optimal Number of Contracts calculator uses Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size to calculate the Optimal Number of Contracts, The Optimal Number of Contracts is the quantity of futures contracts that maximises potential gains while effectively managing risk based on a trader's strategy, capital, and market conditions. Optimal Number of Contracts is denoted by OC symbol.

How to calculate Optimal Number of Contracts using this online calculator? To use this online calculator for Optimal Number of Contracts, enter Optimal Hedge Ratio optimal), Number of Positions Hedged (NPH) & Futures Contract Size (FCS) and hit the calculate button. Here is how the Optimal Number of Contracts calculation can be explained with given input values -> 3.06 = (0.17*4500)/250.

FAQ

What is Optimal Number of Contracts?
The Optimal Number of Contracts is the quantity of futures contracts that maximises potential gains while effectively managing risk based on a trader's strategy, capital, and market conditions and is represented as OC = (Δoptimal*NPH)/FCS or Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size. Optimal Hedge Ratio is the proportion of a position in a hedging asset relative to the position being hedged, aiming to minimize risk exposure while maximizing effectiveness in hedging, Number of Positions Hedged refers to the total count of financial positions or investments that are protected against adverse market movements using hedging strategies & Futures Contract Size refers to the standardized amount of the underlying asset that the contract represents, typically stated in terms of quantity, units, or notional value.
How to calculate Optimal Number of Contracts?
The Optimal Number of Contracts is the quantity of futures contracts that maximises potential gains while effectively managing risk based on a trader's strategy, capital, and market conditions is calculated using Optimal Number of Contracts = (Optimal Hedge Ratio*Number of Positions Hedged)/Futures Contract Size. To calculate Optimal Number of Contracts, you need Optimal Hedge Ratio optimal), Number of Positions Hedged (NPH) & Futures Contract Size (FCS). With our tool, you need to enter the respective value for Optimal Hedge Ratio, Number of Positions Hedged & Futures Contract Size and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.
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