Futures - Key Handout
Futures - Key Handout
Futures - Key Handout
Futures Contracts
Available on a wide range of assets Exchange traded Specications need to be dened:
What can be delivered, Where it can be delivered, & When it can be delivered
Settled daily
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Spot Price
Time
(a) (b)
Time
Margins
A margin is cash or marketable securities deposited by an investor with his or her broker. The balance in the margin account is adjusted to reect daily settlement. Margins minimize the possibility of a loss through a default on a contract.
A Possible Outcome
Day Trade Price ($) Settle Price ($) Daily Gain ($) Cumul. Gain ($) Margin Balance ($) Margin Call ($)
1 1 2
1,250.00 1,241.00 1,238.30 .. 1,236.20 1,229.90 1,230.80 .. 1,226.90 1,800 540 .. 780 1,260 180 .. 780 1,800 2,340 .. 2,760 4,020 3,840 .. 4,620
. 6 . 7
8 .. 16
Broker
Broker
Long Trader
Short Trader
Broker
Broker
Long Trader
Short Trader
Some Terminology
Open interest: the total number of contracts outstanding: equal to number of long positions or number of short positions. Settlement price: the price just before the nal bell each day: used for the daily settlement process. Volume of trading: the number of trades in one day.
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Delivery
If a futures contract is not closed out before maturity, it is usually settled by delivering the assets underlying the contract. When there are alternatives about what is delivered, where it is delivered, and when it is delivered, the party with the short position chooses. A few contracts (for example, those on stock indices and Eurodollars) are settled in cash
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Regulation of Futures
In the US, the regulation of futures markets is primarily the responsibility of the Commodity Futures and Trading Commission (CFTC). Regulators try to protect the public interest and prevent questionable trading practices
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