A trader sold short a cotton futures contract @ 76.98 cents per pound. Contract size is 50,000 pounds. How much does the trader gain or lose in DOLLARS if he closed out his contract when futures price is 64.26 cents per pound. Keep zero decimal points. If it is a loss, please enter a negative number.

$6360

Explanation:

Contract value when the trader sold short = 76.98c * 50000 = $38,490

Contract value when he closed out his contract = 64.26c * 50000 = $32,130

Since the trader had sold short, he is speculating that the price of the futures contract will go down. The value of the contract did go down (in the traders favor) so the difference in value when he sold short and when he closed out his contract will be the profit gained in dollars. Please note that the initial futures prices are quoted in cents and would need to be converted to dollars by dividing by 100c i.e. 3,213,000c = $32,130

Therefore the profit made by the trader in dollars is $38,490 - $32.130 = $6360

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