What are the futures on the bond?
The future of the bond is a contract that entrusts the holder to buy or sell a bond at a specific price for a specified future date. The futures market is considered very risky and complex. In order to fully understand the futures of bonds, it is necessary to understand their derivative nature, besides how the futures market works.
Generally speaking, futures are derivative securities. Purchase and sale of futures for bonds does not mean that a person is obliged to buy or deliver bonds. Instead, a person who buys or sells bonds participates in a contractual agreement where he agrees to purchase or sell the possibility or right to buy or sell a bond.
When a person invests in the future of bonds, he can hold a short or long position. The short position is the seller or person who agrees to the delivery of the bond at the agreed price and the date of delivery. They try to get the highest price for the sale of futures. A long position is the buyer or persons agrees to receive the bond on the with sTanked price and delivery date. A person who holds a long position is trying to buy futures at the lowest possible price.
Many investors prefer to buy and sell futures because they are able to get more financial leverage than traditional markets. As far as futures on bonds are concerned, the lever effect is the ability to control a large number of bonds with a relatively small amount of capital. Increased lever effect leads to higher yields and higher losses. Investors at Futures markets are known as Hedgers or speculators. Hedgers minimize the risk of purchasing or selling futures to bonds now, while speculators try to earn a risk of buying or selling now based on expectations of declining or rising bond prices.
profits and losses from investing in futures on bonds depend on the daily movement of the market. This differs significantly from the stock brand, where investors realize their profits and losses,when they buy or sell their shares. Futures market transactions are settled every day based on cash.
Futures market, including the purchase and sale of futures to bonds, is regulated by government organizations. In the United States, futures are regulated by the commission for trading commodity futures (CFTC) and National Futures Association (NFA). Brokers who want to buy, sell or issue future contracts must register with CFTC and NFA. CFTC, NFA and futures exchange limits the amount of futures to bonds that one person can buy or sell so they are unable to monopolize the market.