What Is a Countertrade?

Reverse trading refers to the operation in the same trading day on the futures market by the trader that the futures contract that was initially bought (or sold) is exactly the same in terms of variety, quantity and delivery date, but in the opposite direction.

Reverse transaction

Trader through reverse trading

In order to settle the responsibility of holding a certain futures contract through hedging, the trader must make a transaction that is opposite to the handheld position, that is, sell long, buy short, and the same variety and quantity must be bought and sold. In order to complete the net position of a futures investment, the transaction can be completed. Reverse trading in the futures market does not require that the trader must carry out reverse operations with the first counterparty of the transaction, but can do reverse transactions with any third party. Because the futures clearing and settlement institution is always the seller to the buyer, and always the buyer to the seller. The reverse transaction process is shown in the table on the right:

Note that if you observe the table to the right, you can see that the first party closed the trading position held by the reverse operation and the second party and the third party have not closed their positions at this time. After the operation is closed, the trading position held in the hand can be closed and the market can be exited.

Because reverse transactions can be conducted with any third party, this makes the futures market highly liquid, and traders can enter at any time and can exit at any time. Its direct responsible party is not its own counterparty, but the settlement company of the futures exchange.