Explanation

Key concept: After daily margin settlement, the value of a futures contract is always zero.

Why?

1. Mark-to-market mechanism: Futures contracts are marked to market daily

2. Margin settlement process:

   • Daily gains/losses are settled through margin accounts
   • After settlement, the contract is effectively "reset" to the current market price
   • The contract value becomes zero because any gains/losses have been realized

3. Mathematical explanation:

   • Original futures price = F₀
   • Current futures price = F₁
   • Gain = F₁ - F₀
   • After margin settlement, this gain is in the investor's margin account
   • The contract now has a new entry price of F₁
   • Value = F₁ - F₁ = 0

This is a fundamental characteristic of futures contracts that distinguishes them from forward contracts, which do not have daily settlement and can have non-zero values between initiation and expiration.