A futures contract is an agreement where the buyer agrees to receive a certain asset at a specific price after a specified period of time, and the seller agrees to deliver a certain asset at a specific price after a specified period of time. Both parties agree that the price used in future transactions is called the futures price. The specified date that the two parties must conduct a transaction in the future is called the settlement date or settlement date. The assets that both parties agree to exchange are called "underlying." If an investor obtains a position in the market by buying a futures contract (that is, agreeing to buy at a future date), it is said that the long position or long on the futures. Conversely, if the investor obtains a position to sell a futures contract (that is, to assume contractual obligations for future sales), the short position is called or shorted on the futures. [1]
Futures contract
A futures contract is a standardized contract designed by an exchange and approved by the national regulatory agency for listing. Holders of futures contracts can fulfill their contractual obligations by settling the spot or conducting hedging transactions.
A futures contract refers to a standardized contract that is uniformly formulated by a futures exchange and stipulates the delivery of a certain number and quality of commodities at a specific time and place in the future. It is the object of futures trading,
Quantity and unit terms
Futures contracts for each commodity provide uniform, standardized quantities
The design of various terms of futures contracts
Chicago Futures Exchange (CBOT) wheat futures contract
Trading unit
5000 bushels
Minimum change price
1/4 cent per bushel ($ 12.50 per contract)
Maximum daily price
Each bushel is not higher or lower than the settlement price of the previous trading day
Fluctuation limit
20 cents ($ 1,000 per contract), unlimited spot months
Contract month
7, 9, 12, 3, 5
transaction hour
9:30 am to 1:15 pm (Chicago time), trading deadline on the last trading day of the expired contract is noon on that day
Last trading day
Seventh business day from last business day of delivery month
1. The commodity type, quantity, quality, grade, delivery time, delivery place and other terms of the futures contract are all established and standardized, and the only variable is price. Standards for futures contracts are usually defined by
One is to attract
Futures contract is
Although the futures contract and the forward contract are both contracts that are agreed to buy and sell a certain amount of certain subject matter at a certain time in the future at the time of the transaction, they have many differences, mainly including:
(1) Different degrees of standardization. Forward contracts follow the principle of freedom of contract. Relevant conditions in the contract, such as the quality, quantity, delivery place and delivery time of the subject matter, are determined according to the needs of both parties; futures contracts are standardized, and futures exchanges are various subject matter The futures contract has standardized terms such as quantity, quality, delivery location, delivery time, delivery method, contract size, and so on.
(2) Different trading venues. There is no fixed place for forward contracts, and both parties to the transaction should find suitable targets; futures contracts are traded on the exchange, and generally OTC trading is not allowed.
(3) The default risk is different. The performance of the forward contract is only guaranteed by the creditworthiness of the two parties. Once one party is unable or unwilling to perform, the other party will suffer losses; the performance of the futures contract is guaranteed by the exchange or clearing company.
(4) Different ways of price determination. Both parties to a forward contract negotiate directly and determine privately. There is asymmetry of information and the pricing efficiency is very low. Futures contracts are determined through open bidding in the exchange.
(5) Different methods of performance. The vast majority of forward contracts are fulfilled only by physical delivery at maturity: the vast majority of futures contracts are closed by closing positions.
(6) The relationship between the two parties to the contract is different. Forward contracts must fully understand the credit and strength of both parties: futures contracts can be completely unaware of both parties.
(7) Different settlement methods. Forwarding contracts are settled only after they expire, and no settlement takes place during the period. Futures contracts are settled daily. Floating profits or fluctuations and losses are reflected in margin accounts.
