In trading on the exchange involved a large number of different financial instruments.One of them, and, moreover, is very popular, is a futures contract.What is it and what are its features - it just will be discussed in this article.
essence and concept
«Future» - in translation from English means "Future" or "future".Futures contract (sometimes simply referred to as futures) is an agreement to sell or buy a specific item in the contract on a specific day and at a pre-agreed price.In the role of such a product can act stocks, currencies or just any product.A futures contract as a kind of came about because both producers and buyers wanted to hedge against unfavorable for them to rise or fall in value in the sector of metals, energy and grain business.Later, as they develop this type of transaction it has begun to spread to other types of trading tools.In particular, it began to contract in the equity indices, interest rates, currencies, etc.There are currently the world's largest futures exchange, which just takes the lion's share of trading this instrument.The most famous of these sites are Chicago Board of Trade, NYMEX (New York), LIFFE (London), FORTS (RTS section).
The futures contract is different from the forward
Buy goods in the future, subject to agreement before the value, you can use another tool.This is a forward contract.It is also quite popular, and it is often used to hedge risks.Most novice investors are confused forward and futures contracts, and therefore indicate their main differences:
- Futures refers only to an organized exchange.
- Forwards are binding and are usually for the purpose of actual delivery.
- Futures have high liquidity and can be disposed of through the conclusion of reciprocal (opposite) of the transaction.
Longs and Shorts
When it comes to the purchase contract, which means the conclusion of a long trade or Long.In this case, the buyer undertakes to accept the exchange of certain primary assets and the due date of execution of the contract to pay the Exchange the sum specified therein.Short - is the inverse operation.When a futures contract is "sold", the supplier agrees to sell (put) the exchange of certain assets when it comes period of performance of the contract, for which Exchange will transfer the appropriate amount of money to him according to the price specified in the contract.In this and in another case for the fulfillment of the obligations do not worry - this is followed by clearing houses.Thus, the investor does not necessarily verify the financial position of the company.
basic conditions
order to conclude a futures contract, you need to make sure on the brokerage account of a particular security.This amount is called the initial margin and expense for which it is introduced, known as a margin account.It sets the minimum size of the Clearing House, guided by the accumulated statistics and taking into account the maximum daily deviation of the asset value.The brokerage company may also require the investor's margin calls in a large amount.In addition, the client must be a futures account, which shall be not less than 65% of the initial deposit.If this condition is not fulfilled, the broker notifies the Investor about the need for additional funding to achieve the original level (variation) margin.Also, if this requirement is missing, the broker has the right to liquidate a futures contract by a reverse operation by the customer.Every day at the end of the trading session clearinghouse makes recalculation of all open positions: win amount is credited to the successful investors from the accounts of those who lost.It also involves the correction positions of the parties or restricted their total number.
