Chapter 2 Mechanics Of Futures Markets

Topics: Futures contract, Short, Forward contract Pages: 60 (3009 words) Published: April 6, 2015
Chapter 2 Mechanics of
Futures Markets

1

Outline
Opening

and Closing Futures Contracts
The Specification of the Futures
Contract
Daily Settlement and Margins
Futures price quotes
Convergence of Futures Price to Spot
Price
Delivery
Forward contracts vs Futures contracts
Types of Traders

2.1 Opening and Closing out
Futures Contracts
Cash or Spot Market

: The market for
immediate delivery and payment
Gas station, grocery store, department store,
etc.
SELLER
BUYER
Delivers Commodity Accept Commodity
Receives payment
Pays
The SELLER is said to be SHORT
The BUYER is said to be LONG


3

Futures Market


The market for deferred delivery and
deferred payment.



The two parties make a contract that
determines the delivery and payment
place and time in the future.
future

SHORT Position =commit to sell
 LONG Position = commit to buy


Available on a wide range of assets

A

contract is usually referred to
by its delivery month.
◦Buy 100 oz. of gold @ US$900/oz. in
December (NYMEX) – long position
◦Sell £62,500 @ 2.0500 US$/£ in March
(CME)—short position
◦Sell 1,000 bbl. of oil @ US$120/bbl. in
April (NYMEX)– short position

Opening a Future Contract – an
Example of Corn Future Contract traded on
CME
On

March 5 an investor in New York might call
a broker with instructions to buy 5,000 bushels
of corn for delivery in July of the same year.
The broker would immediately pass these
instructions on to a trader on the floor of the
CME.
The broker would request a long position
in one contract (each corn contract on CME is
for the delivery of 5,000 bushels).

At

about the same time, another investor in
Kansas might instruct a broker to sell 5,000
bushels of corn for July delivery.
This broker would pass instructions to
short one contract to a trader on the floor
of CME.
The two floor traders would meet, agree on
a price to be paid for the corn in July, and
the deal would be done.
Such price is called the current future
price for July corn, which is determined by
the law of supply and demand.
demand

Closing out position
Entering

into the opposite type of
trade from the original one.
one
(Offsetting)
Offsetting
Delivery
cash settlement
The

vast majority of futures
contracts do not lead to delivery.
delivery
Inconvenient and Expensive

Example Cont.
The

New York investor can close out the
position by selling one July corn futures
contract on April 20.

The

Kansas investor can close out the
position by buying one July corn futures
contract on April 20.

Total

gain or loss of each investor is
determined by the change in the futures
price between March 5 and April 20.

2.2 Specification of
Futures Contract
 Specifications

need to be defined:
◦ What can be delivered– the Asset
◦ How much of the asset will be delivered under one
contract -- Contract size
◦ Where it can be delivered– Delivery Arrangements
◦ When it can be delivered– Delivery Months

http://www.cmegroup.com

/market-regulation/rulebook/

交易品种

黄金

交易单单


1000 克 / 手

单价位
单单

元(人民单单
)/ 克

最小单单单
价位


0.01 元 / 克

每日价格最大波单单
限制


不超单单
上一交易日
单 单 单 单 单单
算价

±5%

合单单
交割月份
单单 单

1 - 12 月

交易单单

上午 9:00 - 11:30 下午 1:30 - 3:00

最后交易日

合单单
交割月份的
单 单 单 单 15 日(遇法定假日单单
延)


交割日期

最后交易日后单单单
五个工作日
单单单 单

交割品单

金含量不小于 99.95% 的国单单
金单单
及单单
交易所认可的
单 单 单 单 单 单单
敦金
单 单单
市单单单

( LBMA )认定的合格供单单
商或精
单 单 单单
厂生
单 单单
的单单
准金
单单
(具体单单
量单单
定单单
附件)。
单 单单

交割地点

交易所指定交割金单

最低交易保单单


合单单
价单单

7%

交易手单单

不高于成交金单单
的万分之二(含
单 单 单 单 单 单 单单单
准单单
金)


交割方式

单物交割

交易代单

AU

上市交易所

上海期货交易所

The Asset
Commodity

◦ Need to specify the grade of the underlying
asset
◦ For some commodities a range of grades
can be delivered, but the price received
depends on the grade chosen.
Financial Asset...
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