Futures are one of the types of exchange contracts that allow today (!) the seller to agree with the buyer on a price so that in the future (for example, 3 months after the conclusion of the contract), regardless of the cost, buy an asset at the old price or pay the difference in price as agreed.

The purchase is mandatory under an agreement with the exchange, regardless of the circumstances. This is why a futures contract can be beneficial to both the seller and the buyer:

• if the asset has fallen in price, it is profitable for the seller to sell it at the old (higher) price,
• if the asset, on the contrary, has risen in price, then the benefit remains on the buyer’s side - he purchases it cheaper.

Types of futures contracts

There are two types of futures:

Deliverable futures. It consists in the acquisition by the buyer of a fixed number of assets on the date of fulfillment of mutual obligations. The price per unit of a product is determined by its value on the last date of trading on the exchange when the contract was signed. If the conditions are not met by the seller of the assets, the exchange imposes a fine equivalent to the total value of the assets.

Non-deliverable futures or settlement. This type of contract involves only monetary transactions, without the delivery of the assets themselves. The cost is calculated using the formula for the difference between the contract price and the actual price of the asset on the date of the transaction. This type is used primarily to eliminate the risk of hedging the price of the underlying asset or for speculation purposes.

Futures Contract Specification

A specification refers to the documented ground rules established by an exchange to govern futures contracts. In them you can find:

• name of the contract,
• abbreviated (conditional) name,
• type (settlement contract or delivery contract),
• size (number of units of asset transferred per contract),
• validity periods,
• date of delivery,
• minimum established price fluctuations,
• minimum step cost.

Persons who signed the contract must fulfill it, otherwise the exchange will impose a fine on them.

What are futures used for?

As already mentioned, this type of transaction is used to reduce risks on the part of both the seller and the trader. Also, the last (settlement) type can be used for the purpose of fraud with money or securities.

This is a kind of transaction between two parties. One side bets money or assets that they will rise in price by a certain date, the other side bets that they will fall in price. The one whose prediction turns out to be more correct “wins” (and therefore earns). In principle, as with any other exchange contracts.

The difference between futures contracts and forward contracts

Perhaps the main difference between futures contracts and forward contracts is that the latter represent a one-time over-the-counter (!) transaction between a seller and a trader, while the former are a permanent type of contract that is traded daily on futures exchanges.

The difference between futures contracts and options

Options are not much different from futures. But there are differences. So the first type of contract, for example, only gives the right to purchase an asset on a certain date, but leaves no obligations. Futures leave an obligation to fulfill the conditions on the exchange. This is why options are considered a safer type of trading proposition on many exchanges: the buyer (trader) only risks money for the contract, and not for the entire transaction.

Where and how are futures traded in Russia and the USA?

Around the world and in Russia, futures contracts are traded mainly on special financial exchanges, but they can also be traded on regular ones. So in Russia, for example, the following large exchanges are available:

• Moscow Exchange,
• Stock Exchange of St. Petersburg,
• Moscow Futures Exchange.

There are also online platforms where you can buy this type of contract.

Global trading platforms are located primarily in the United States - this is where this type of contract is most common.

World sites:

• Chicago Comrade exchange - CTB (Chicago Mercantile Exchange - CME),
• New York Comrade exchange - NYTB (New York Mercantile Exchange - NYMEX),
• Eurex,
• Singapore Securities Exchange (SFX).

Common Trading Strategies

Every beginner and experienced trader should have their own clearly planned trading strategy. But no one can guarantee a 100% chance of success. There are always risks. So there are many factors to consider when putting together your own futures trading strategy. Such as:

• liquidity,
• volume,
• broker,
• diversification
• interest.

It is also worth thoroughly studying the market and the general situation in it to be sure of the correctness of your actions.

Trading strategies on the RTS

RTS is the largest “Russian Trading System”, with which at the moment (2016) more than 500 different companies and organizations cooperate. The strategy is called “medium-term trading on the RTS index.” It is used by most investors who do not consider themselves professional traders and cannot afford the high costs and risks. Just amateurs.

The essence of the strategy is a fairly long-term (from several months to a couple of years) investment of futures in assets of a falling or growing market (not recommended in a stable one). The risks are minimal, and the buyer does not need to sit around the clock and monitor the coding.

There are also riskier strategies. This is the purchase of short-term contracts (lasting up to 2 months) or vice versa long-term (lasting from 3 years).

Conclusion

The benefits of trading on exchanges using futures contracts are many for both parties. The risks with such a scheme are minimal, and the potential benefits are high; the main thing is to be able to assess the situation and act based on it.

And thanks to medium-term contracts, any trader can engage in this type of trading: both experienced and amateur.

Trading tools

Good afternoon, trading blog readers. The word futures is an agreement or contract between a buyer and a seller that obliges both to buy or sell some asset at a specific time in the future at the current price.

These contracts are freely traded on exchanges and are traded with a fairly large leverage(10:1 or 20:1), through which they are very popular among experienced speculators. After reading this page to the end, you will understand the main idea that I want to convey to you: futures are a fairly powerful and profitable financial instrument for trading, but they carry great risks for a novice trader due to their trading features.

Imagine a baker who makes beautiful and delicious products from wheat flour. His business is stable, orders are placed months in advance. He buys wheat from the nearest farmer at an adequate price. What will happen to the business of a baker who works on pre-orders if next year the harvest is bad and the price of wheat rises? In simple words, he will suffer losses.

For these reasons, the baker comes to the farmer and offers to conclude an agreement for the purchase of 10 tons of wheat at the current price next year for a small advance payment (warranty coverage) 5-10% of the total transaction value. The first undertakes to buy and the second to sell. The farmer agrees, since another farm has opened nearby, which gives him considerable competition. Who knows if he will be able to sell grain next year?

This agreement is a futures contract. No matter how things turn out next year, the deal must be completed. Both sides are on equal terms. If the wheat harvest is poor, the price will rise. The baker will be pleased because he buys at the old price, and the farmer, although he will not be offended, will be disappointed.

If the wheat harvest is excellent, the price will fall. The farmer is happy that he can sell his goods at a higher price, and the baker is upset, although his business continues to operate steadily.

Let's summarize briefly. Futures are:

• A tool that puts the buyer and seller in equal conditions;
• Commitment buy Sell underlying asset, which in our example is wheat. The underlying assets can be stock indices, goods and raw materials, currency, precious metals and other assets;
• Agreement or just a piece of paper that stands 5-10% of the entire transaction value. The transaction itself is completed 100% only in the future after the expiration of the contract.

Why do we need futures?

Firstly, to limit risks. In the example above, both the farmer and the baker simply wanted to insure their businesses against unexpected price changes. That is, futures are one of the hedging methods. You buy it to hedge against a rise in the price of the underlying asset and sell it if you need to limit losses when the price of the underlying asset falls.

Secondly, futures are an ideal tool for speculation. On a futures exchange, a trader does not wait for the contract to expire to receive the underlying asset. He actively buys and sells futures for only 5-10% of the value of the entire transaction. This is a prime example margin trading, when you get leverage from 10 to 1 to 20 to 1.

What are the risks of futures trading?

Futures are a purely speculative instrument. It’s just that no one can predict what the price of the underlying asset will be in a year or a few months. For example, the amount of wheat on market shelves depends on the natural conditions that affect the harvest, storage conditions and delivery options (transport, roads). Will you be able to predict all this and place your bet? Of course not.

To help you understand this, compare futures with share? If a business shows an increase in profits year after year, then the price of its shares will continue to rise in the future. Investors like Buffett know this well and make money this way.

Another feature of futures is margin trading. You are getting leverage, which makes it possible to open positions that are 10 or even 20 times larger than your trading account. Thus, if, for example, a $1 change in the stock price corresponds to a profit or loss of $1 (per 1 lot), then a $1 change in the futures price corresponds to a profit or loss of $10 or $20 (per contract).

The language of stock traders seems like complete gobbledygook to an untrained person: forward, futures, hedging, options. Although, these words hide quite understandable actions. This is not an attempt to close ourselves off from the uninitiated, it’s just more convenient.

What is a futures contract

The meaning of the term “futures” can be understood based on the translation from English of the word future - future.

Futures (futures contract): a transaction, the price and quantity of goods for which are fixed at the time of signing the contract, and obligations (the need to pay for the transaction) will arise through futures-determined time.

“Specified time” must be at least more than two business days. Otherwise, this transaction is called differently.

Simply put, futures are risk trading. At the same time, the counterparty, who does not want to take risks, offers his future product at a favorable price. For this he receives guaranteed sales. The buyer, at his own risk, may receive the product at a lower price in the future.

The difference between a futures contract and a forward contract is that forward- This is a one-time, non-standardized, over-the-counter transaction. Futures are traded on the exchange, and constantly.

Often, after the deadline, no real deal occurs, it is done payment of the difference between the contract price and the actual market price on the day specified in the contract.

Let’s say that in the spring a farmer places a futures contract on the stock exchange to sell wheat at $100 per barrel. In the fall, the price of wheat at the time of purchase of goods is $110 per barrel. That's 10% net profit. And perhaps in a month it will be $130 per barrel.

In this case, the farmer is a hedger (), and his buyer is a speculator. This word still has a negative connotation in our country, although a stock speculator is a player who makes money on risky operations. The price could fall to $90, then the speculator would be in the red.

Read more about the difference between futures and options. Although these concepts are very similar, there are also differences.

Index futures

Often in the economic section of the news the following words are heard: Dow Jones index, Nasdaq, RTS (Russian stock index). The value of these indices is calculated from a variety of indicators of the economy to which the index relates.

The first of those listed are American. The Dow Jones Industrial Average characterizes the market position of the 30 largest US companies. Nasdaq deals with shares of high-tech corporations.

Futures contracts can be concluded not only for the supply of goods, but also for changes in indices. Such futures are called index futures. Here, profit (or loss) is the change in the value of the index on which the transaction was concluded. The contract specifies the price of one point; at the end of the futures, settlements are made.

The purpose of concluding a contract may be to speculate on changes in the index or to hedge the securities included in the calculation of this indicator.

Remains the most popular on Russian exchanges RTS index futures, which is characterized by:

• high liquidity;
• minimal costs;
• maximum leverage.

When entering into an index futures contract, all buyer-seller relationships happen through the exchange, without the need for direct contact. Both accrual of profits and write-off of losses.

Upon expiration of the contract, each participant in the transaction, based on the trading results, will be credited (or debited) with the amount of the difference between the futures and the real, the exchange receives its percentage for intermediation.

Gold futures

Just like regular futures, a gold transaction has the same principles, only the underlying asset is gold. Futures can be (similar to other types of contracts):

The benefit of gold futures is that the exchange provides leverage of 1:20. That is, to carry out transactions, a security amounting to 5% of the transaction amount is sufficient. But the risk increases proportionally.

Actions that provide an opportunity to make a profit or reduce risks:

• purchase in anticipation of an increase in metal prices;
• purchase in anticipation of a decrease in metal prices;
• trading using exchange leverage;
• hedging losses from rising gold prices;
• hedging losses from a decrease in the price of gold.

Oil futures

Oil futures are traded on the following exchanges:

Currently, only 2% of futures transactions are carried out by real oil suppliers and consumers who hedge their risks. The remaining 98% of transactions are made by speculators.

Electronic trading on stock exchanges, There is no physical delivery of oil. At the end of trading, settlements are made between the parties to the futures.

The benefit of working in this market is the provision of leverage (1:6), the minimum lot is 10 barrels. Therefore, you can start earning money by investing a symbolic amount - a little more than 7,000 rubles.

Just as in the case of gold, the presence of leverage represents both greater gains and losses, in the same proportion.

Experts believe futures transactions are the most risky. The probability of success here is equal to the probability of loss - 50/50. Therefore, it is not recommended to invest more than 20% of capital in this sector.

Today on the Econ Dude blog we will talk briefly about futures contracts (futures) and I will give an example of how they work on the stock exchange and when trading.

In fact, most people do not need to know this, since the topic is very specialized. Even economists often do not teach this within the framework of general economic theory, because it relates to trading on the stock exchange and is more Western. But nevertheless, for everyone who is somehow connected with this trade, either professionally or simply interested, futures are a thing that sometimes occurs.

So, the word comes from the English futures contract, futures. And this word came from future - the future. A futures contract is an agreement between two parties to transact a security at a predetermined price. in future.

These contracts appeared in a rather interesting way and it was connected with. Since the production cycles of grain or cotton are quite long in terms of time, a guarantee of delivery was needed, and such contracts were such a guarantee.

Roughly speaking, the owner of the mill and bakery could agree with the farmer that he would buy grain in 6 months for $1, and the other party would deliver the goods at that moment. Such long-term contracts protected suppliers and sellers, allowing for more stable supply chains.

But then curious things happened: there was no longer a shortage of such suppliers and it was possible to buy almost any product at almost any time, the need for such contracts fell. But everyone liked the idea of ​​executing a transaction after X amount of time because it gave more predictability and stability, and they picked up on this idea.

Such contracts can be called deferred; they are very close in meaning and mechanics to orders or forwards, but there are also slight differences. Futures in general are like one of the types of forwards, the difference is that futures are traded on an exchange, but forwards are darker, one-time and private transactions outside the exchange.

Index futures were traded by Nick Lisson () , and forwards are traded, for example, by importers, for example, by concluding these contracts to purchase currency in X days in order to protect themselves from the risk of quotes jumps.

At the same time, you cannot really speculate on forwards, since they are not on the exchange, but futures can be sold at any time.

Some people, I had an acquaintance, traded futures for a long time and did not even understand that they were trading them and what it was. Like a person buys and sells oil futures without even understanding that in fact such a future involves the delivery of crude oil to him, although in fact it has been under such contracts for a long time almost they don't deliver anything. Such instruments inflate markets, including the oil price market, introducing a wild speculative part into it, when real production, extraction and consumption cease to play any role in pricing, and everything stupidly depends on the behavior of investors, and not on fundamental factors.

An example of what a futures is (futures contract) you can give this one.

Consider a classic oil futures contract:

A friend of mine was selling this without even realizing that they could naturally bring him oil. I’m kidding, of course, because if you trade this through Russia, then most likely everything is done through an intermediary, and maybe many, but the essence of the futures is exactly this: by buying one such contract, for example for $68 now, you will receive 1 barrel of crude oil. The pendos will be brought by helicopter and poured into your window.

You can read how exactly the goods are delivered at the time the futures are executed if you know English, but personally this point has been interesting to me for a long time, and it was very difficult to find information on it, even in English.

And it shows that the trading volume on the market is 1.2 million contracts, not that much in fact, this is a day trade of 81 million dollars, although on some days it is twice as much. You see there in the picture CLM18 - this is the futures of 2018, that year CLM17 was traded and so on. It was a different paper and last year’s trading has already passed, and our futures closes in June 18th year.

Now the futures is trading at $68, and the real current price is slightly different, this is called spot price, but it is difficult to find as many popular sites do not even track it, and often do not mention that they show you the futures price, not the current one.

Here are all futures prices

Russian oil is Urals, the difference in its price with others is not significant, but it exists. Russian oil is not of the highest quality, but not the worst either.

So, you can buy all these futures, through a broker and using, for example, MetaTrader you get access to all the instruments.

It is clear that real oil will not be delivered to you, but there is a redemption mechanism at the end of the contract, plus, many people play in the futures market very speculatively and buy/sell a million times a day.

Each futures contract has a specification. This is a document that contains the main terms of the contract:

• Name of the contract;
• Contract type (calculated or delivered);
• Price (size) contract - the amount of the underlying asset;
• Maturity period - the period during which the contract can be resold or bought back;
• Delivery or settlement date - the day on which the parties to the contract must fulfill their obligations;
• Minimum price change (step);
• Minimum step cost.

You can find all this, for example, on the website investing.com, it looks like this:

Below you see all the parameters of this contract

Now we are at the end of April 2018, the 26th. The contract will be executed in two months, but the price is constantly changing. At this second, enter into a contract, having purchased it, you have a fixed delivery at this price in 2 months. If something goes wrong, you can sell this futures at a different current price before June.

Futures are also used for the so-called (safety net), since they are executed at a fixed price in the future. In this way, you can be guaranteed to get one part of the equation stable, and the other to play more actively, but I will write more about this later in another article.

“Futures are very liquid, volatile and quite risky, so new investors and traders should not deal with them without proper preparation.” -

The same site reports that there are no real deliveries on futures, but in fact there are, it all depends on the type of futures.

If there is no supply, then the variation margin mechanics work.

When a futures contract is executed, if there is no delivery, the current price of the asset is compared to the futures purchase price and the exchange automatically calculates the difference, either paying you a premium or taking your money.

For example, if you buy a futures on an asset for $10 now, which expires in a year, and hold it for a year. Then, if the price has become, say, $15, then you will be charged $5, and if the price has dropped to $7, then they will charge you $3.

It is precisely because of such mechanics that exchanges require margin (Deposit margin - collateral) and a margin call may occur - automatic closing of positions. If you have no funds in your account, and your futures have fallen, while execution is still far away, then you have huge problems. You must have funds to cover potential losses at the time the futures close, this is a requirement of the exchange, and this is what led Singapore trader Nick Lisson to collapse. And that is why he constantly begged for money in London, precisely to cover this margin, and then forged documents (I'm talking about the movie "The Con Man" starring Ewan McGregor).

These are the pies. I hope the Econ Dude blog gave adequate examples and explained how futures work; you can find other articles about economics here.

Futures are contracts entered into for the delivery of certain goods in the future at fixed prices.

According to these contracts, one party will buy an asset in the future at a specific time and in a specific volume, and the other party will deliver it at the appointed time and in the required volume.

The main purpose of futures is to minimize the buyer’s risks in case of a possible deterioration of the market situation by fixing the price of the product today.

Confirmation of the intentions of the parties is the payment of a guarantee (collateral) for the fulfillment of a future obligation.

Historically, for the first time, futures became the basis of trading relationships between farmers, who, by fixing prices for raw materials, ensured profit from the sale of the future harvest - by setting the price for products at the beginning of the season, the farmer could plan his seasonal budget, his profit and current expenses.

At the moment, futures are constantly used in trading various commodities and financial assets around the world.

Today, futures trading is largely speculative in nature, since its main goal is to make a profit.

Depending on the subject of the transaction The following are the most popular types of futures on world trading exchanges:

• currency futures;
• futures on securities;
• metal futures;
• oil futures;
• futures for grain crops.

Wherein depending on the purpose of compilation futures are divided into:

• settlement futures, which are used when the parties make exclusively monetary settlements;
• deliverable futures, which are used for the purchase and sale of certain volumes (quantities) of underlying assets (securities, oil, gold, currency, and so on).

Watch a short video that explains in simple terms what futures are.

Largest futures exchanges

Futures trading today it is carried out all over the world through the use of various exchanges, among which are:

• New York Mercantile Exchange - NYMEX;
• Derivatives Commodity Exchange in Chicago - SWOT;
• Chicago Mercantile Exchange - CME;
• London International Financial Futures Exchange - LIFFE;
• International Petroleum Exchange in London - IPE;
• London Metal Exchange - LME.

Futures Trading Basics

To trade futures, you need knowledge and understanding of the basic principles used in exchange trading:

1. Exchange where futures trading takes place– it is important to know the volumes and operating hours of exchanges trading specific goods.
2. Unit of measurement of a futures contract– exchanges trade not in contracts and commodities, but in lots. Each futures contract has a standardized size: for example, gold is ounces, oil is barrels, euro is euro, etc.
3. Teak size. A tick is the minimum price change value. For example, a tick on the E-mini S&P 500 futures is equal to 0.25 index points (with an index point of $50, the tick would be $12.5).

Accordingly, each asset has its own tick, for example, for the pound or euro it is 0.0001.

1. Margin. In general, the presence of a margin means that when entering a position, part of the funds from the deposit is blocked to maintain it. For futures, a margin is also set for maintaining a position throughout the day and for rolling it over to the next day.
2. Futures trading time– exchanges establish “trading break” periods. For example, for S&P - 00:15-00:30 Moscow time, for currencies - 01:00-02:00 Moscow time, etc.
3. Time for the most active futures trading– there are periods of time when the largest infusions for specific contracts are provided and the strongest intra-session trends are created. You need to know these time frames so that futures trading can bring you maximum income (for example, for currencies - 10:00 and 16:00 Moscow time, for indices - 17:30 Moscow time).

How to make money on futures

To understand how to make money on futures, you need to understand the following points.