Hello, dear blog readers! Every day, well-known financial instruments, such as currency pairs or stocks, are becoming less and less attractive for private traders who work with relatively small capital. Of course, this puts investors in a difficult position. However, this does not mean that online trading has completely exhausted itself: to get back into the game again, it’s quite simple reconsider certain emphases and shift your focus to new ways of investing.

Derivatives trading, namely futures trading, deserves special attention. Actually, this is what we will talk about now.

What is a futures?

Futures is a contract concluded between two investors. The subject of the agreement is the delivery of the asset within a clearly established time frame and at a pre-agreed price. In such a trading operation, the exchange acts both as an intermediary and a regulator.

Let's try again to figure out what futures are, but now in simple words. Let us explain the essence of this derivative financial instrument using an example. Let's say you have 3 tons of grain, but this year a record harvest is expected, which will ultimately cause the value of this asset to decline. How to insure yourself against possible risks?

It is enough to conclude a futures contract by selling grain at a set price. Let’s imagine that at the time the agreement was signed, the price had not yet dropped. Thus, if the fears come true, the buyer of the asset will lose money, while you sell the grain at the highest possible price.

However, the proposed example is more theory, because private investors do not trade grain, they earn money through speculative trading operations. Futures trading is designed in such a way that each participant in the transaction will be able to transfer their obligations to third parties, which actually allows you to speculate without waiting for the actual delivery of the asset. Not to mention that there are special futures contracts that do not involve physical delivery of the asset.

Educational introductory videos

To reinforce the material, be sure to watch a series of videos that will introduce you to futures.

Classification of contracts

Futures are divided into two categories: delivery and settlement. Naturally, trading technology changes depending on the type of contract. Therefore, before you start trading, you need to carefully study the characteristic features both types.

Delivery

The essence delivery futures is clearly expressed in the very name of the derivative. It involves completing a transaction with the actual delivery of goods. Thus, at the end of the contract's maturity, the buyer must receive the asset at a predetermined price. Compliance with conditions controlled by the exchange, if the rules of the transaction are violated, a fine is imposed on the participant.

Settlement

Calculated futures is the radical opposite, because according to the terms of this contract actual delivery of the asset is not anticipated. Payments between participants are made exclusively in cash.

From all that has been said above, we can conclude that supply futures are used mainly by agricultural and industrial enterprises that are really interested in purchasing raw materials or finished goods at the best price. In its turn, settlement contracts are used by investors to make speculative transactions.

Key differences between futures and stocks

Promotion is a financial instrument presented in the form of a legally approved document. Participants in a transaction with this security are vested with certain obligations and rights. In its turn futures is a derivative, that is, a derivative instrument expressed in the form of a contract for the supply of an asset.

Thus, you can buy stock futures, index futures, oil futures, gold futures and other assets. The topic of stock trading for beginners and not only is covered in detail in the article “”.

Futures trading also differs from stock trading in that contracts have built-in leverage. This feature fully determines the fact that futures are perhaps the most liquid instrument. Below is a video that explains in detail how leverage works.

Trading platforms: CME and FORTS

Futures trading is predominantly carried out on the American and Russian markets, CME And FORTS respectively.

USA

Chicago Mercantile Exchange– one of the most famous trading platforms in the world. In 2013, CME absorbed the equally well-known exchanges NYMEX and CBOT. In the American market, investors buy futures for international assets, such as Brent oil and shares of well-known issuers.

To start working on the Chicago Stock Exchange, an investor needs to select a broker who would provide a similar service. The impressive size of the guarantee on futures is perhaps the stumbling block due to which Russian investors refuse to enter the American market. However, some brokers offer the most favorable trading conditions.

Open a brokerage account

Russia

As for the Russian market, the exchange is the uncontested leader here FORTS. The most liquid instruments of this trading platform are futures for Gazprom shares, for the RTS index, as well as for leading currency pairs. In the domestic market, trading futures for beginners usually means choosing shares of Gazprom or Sberbank. Of course, the RTS index is characterized by greater liquidity, but such trading is accompanied by additional difficulties, so if you do not have experience, it is better to start with something simpler.

Of course, to trade on the FORTS derivatives market you also need broker. The most favorable terms of cooperation are offered by the well-known company Zerich.

• Firstly, it's worth noting colossal experience– the company has been operating since 1995;
• Secondly, the minimum threshold for entering the Russian market is only 30,000 rubles;
• Thirdly, the company installs minimum commissions.

Anyone can familiarize themselves with the additional terms of cooperation by reading. This article examines in detail the history of the formation and development of the company, current offers for trading on financial markets, and also presents visual instructions upon registration of the deposit.

Below you can watch a portion of the webinar that explains the difference between CME and FORTS

A practical guide to futures trading

Actually, we have figured out the main theoretical features of futures trading. However, the training does not end there, because in order to earn a stable income, you need to have in your arsenal all the necessary Practical skills. Now we will try to fully answer the most common questions that arise from traders who are going to invest money in trading futures contracts.

Where can I find a complete list of futures?

Naturally, every trader begins his work by selecting financial assets that could later be included in his investment portfolio. The article "" describes in detail what it is, as well as what rules must be adhered to during the formation of this portfolio. However, where exactly can you find a list of futures contracts available for trading? The full list is posted on the official website of the exchange.

Let's consider the procedure for searching for an asset using the example of the Chicago Mercantile Exchange.

1. In order to find the required contract in the trading platform in the future, you first need to define ticker trading instrument. Suppose we need to find gold.
2. Opening CME Group exchange website
   
3. After this, you should open the section “ Trading»-« Products" Among the subsections that appear, select “”
   
4. In the column “” you will see a contract for gold, it is designated as follows “ GC Gold»
   
5. We open detailed information on gold futures. In particular, you need to find a link to the specification of this contract
   You will need this link more than once during trading. The fact is that such a table contains universal information on the contract, including the instrument ticker, in this case it is G.C..

If you don't understand any section of the table, use Google's machine translation:

If you are uncomfortable viewing information through the exchange, use the website rjobrien.com . On it you can look:

• contact specification ;
• list of symbols ;
• futures calendar and other useful information.

The principle of selecting futures by date. What is the difference?

The specification of each contract states futures expiration date. As soon as the contract is executed, the actual result of the trading operation is calculated, that is, the seller receives money and the buyer receives assets. In futures trading, transactions are closed on a centralized basis through expiration absolutely everyone open positions. Also, for some instruments you can see that several contracts for one asset are traded; naturally, the delivery time is also different.

The execution date is indicated by a letter and the year by a number.. The symbol system is unified, that is, it is used on absolutely all exchanges on which futures are traded. The expiration date varies depending on the underlying asset. For example, execution of index and currency futures occurs at the beginning of the third week of March, June, September or December. As a rule, this is the 20th or 21st.

How do investors select futures by date?

It all depends on the trading strategy used. Conventionally, contracts are divided into long-term, short-term And medium term. Depending on his own preferences, the trader gives preference to one or another type. Below you can watch a video that very briefly explains how to properly read futures specification at CME.

Which futures have the greatest investment attractiveness?

This topic has already been partially touched upon earlier using the example of the Russian derivatives market FORTS. However, the principle remains the same, even if we are talking about American trading platforms. Popular indices always have the greatest volatility and liquidity: RTS, Dow Jones, S&P and others. However, again, it is worth emphasizing that only experienced traders understand how to trade futures of this caliber.

Popular currency pairs are also not particularly inferior to indices in terms of liquidity and volatility, but at the same time they easier to understand. We are talking about assets such as EUR/USD, AUD/USD, GBP/USD, CHF/JPY. Basically, there is always a demand for currencies with the dollar. Naturally, the volatility of an asset directly depends on the current trading session. You can always go the easiest way and purchase futures on shares of a popular issuer. If in Russia " Blue chips» can be called Gazprom or Sberbank, but in the USA it is Google, Apple, Intel and other well-known corporations. Also a win-win option would be trading futures on precious metals, especially gold.

The video talks about the five most popular futures in the US.

How many futures can you buy for 1000/5000/10000 dollars without leverage?

To answer these questions, we need to look at a specific example. First, you need to understand how the cost of one futures contract is formed? On the first day of circulation of the instrument, the price is set by the trade organizer - the exchange. Subsequently, futures quotes change under the pressure of supply and demand.

Clearing– write-off, as well as accrual of VO ( variation margin) is carried out daily 5 times a week, except holidays and weekends. Therefore, profit and loss are also calculated daily, and not only during the period of sale of a trading instrument. At the moment of opening a trading operation, a certain amount of money is frozen in the investor's account; it will not be available as long as the investor is the holder of this contract.

On exchange websites you can find complex and confusing collateral tables, which are extremely difficult for a beginner to interpret. Therefore, it is better to use a helper site rjobrien , on which it is located pivot table margin collateral. Alternative source - tradeinvest website (futures specification , margin requirements ).

Example

As an example, we use the same gold futures, which is located in the section CMX. Look in the column " Spec Init", which displays the initial margin. Let this parameter be equal to 10,125$ . This means that to purchase and stable trade such a contract, an investor will need a deposit of at least $12,000-13,000.

The next column displays the parameters of the maintenance margin, in our case this is the amount 7,500$ . If the deposit contains less than the specified amount, the so-called Margin Call. Accordingly, you will either have to record losses or deposit additional funds.

Concerning commissions, then it all depends on the broker. By collaborating with companies that were proposed earlier, the investor will be able to save on commission costs.

How many futures can you buy for $1000/5000/10000 with leverage?

The amount of leverage depends on the trading conditions offered by the selected broker. Most often there are companies offering a ratio 1:14 And 1:17 .

To understand the calculation scheme, be sure to watch the following videos. It calculates the number of gold futures contracts.

Trading algorithm

1. We determine the current value of the futures contract;
2. We look at the size of the guarantee;
3. We divide the deposit amount by the size of the collateral and get the number of available contracts.

Now let's look at an example. Let's calculate the number of gold futures contracts that we can purchase with a deposit of $1000, $5000 and $10,000. Just a warning: The calculations made are approximate and may vary depending on various trading parameters.

• Current value of a troy ounce 1268$ ;
• Warranty 6233 rubles or 109$ ;
• Leverage 1:14 .

We count the number of contracts for different depot sizes. We divide the deposit amount by the amount of the guarantee.

Thus, we calculated the maximum limit that the deposit can withstand. When entering a trade it is important don't forget about risk management and the inverse of leverage. Let's say you have $5,000 in your account, and you can buy 45 contracts with it. Since you are a smart trader, you limit your risk to 3% when entering a position. In money terms this is $150. This way you work with 1 contract. Depending on the situation, the numbers may change, however, forget about money management you have no right.

1. For novice investors, it is best to start with the Russian derivatives market, using highly liquid trading instruments: RTS index, Gazprom shares, currency pairs EUR/USD, RUB/USD. Trading futures contracts on these assets is characterized by excellent returns.
2. To line up trading system, you must first undergo appropriate training. Investors mainly use mechanical strategies based on the work of indicators. You can also use candlestick analysis tools. To do this, I recommend that you read the article “”.
3. Before you start trading with real money, carefully hone your skills on a practice trading account. It is also advisable to select two markets at once in which the effectiveness of strategies could be tested.
4. Develop your own risk management system, in order to constantly monitor the size of the trading account and reduce the likelihood of a complete loss of the deposit.
5. Enter into a user agreement with one of the previously proposed brokers - Zerich or Just2Trade.

Video series for beginners and more

Watch the training webinar conducted by the director of the company's school of stock exchange skills Zerich. After watching it, you will learn how to trade futures through the trading terminal QUIK.

Another video explaining principle of making money from oil using futures.

Results

We looked at the key features of trading futures contracts. This is a truly profitable derivative financial instrument. Therefore, provided serious attitude towards trading, you can achieve a positive result in the shortest possible time.

Thank you for your attention, dear blog readers! Subscribe to updates to keep abreast of the latest events and be the first to know about current news.

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The modern futures and options market is the largest trading platform, combining stability, modern infrastructure, guarantees, and modern technical solutions proven over decades. How to trade futures in order to receive a stable and rapidly growing income - this is a question asked by many newcomers to this market.

A futures contract is an agreement between two market participants to deliver an asset on a timely basis and at a pre-agreed price. The intermediary in concluding a transaction is the exchange, which acts as a regulator. Futures contracts are standardized in a number of aspects (form of payment, amount of penalties for failure to fulfill agreements, type of goods, delivery conditions) with the exception of the price of goods put up for trading on the exchange. The main property that futures have is the ability to transfer obligations under the contract to third parties, which allows participants in the transaction to minimize the level of risk. Each futures has its own specification and trades on the market for a certain time. For example, many futures trade on the market for six months, of which the last 3 months are usually the most active for transactions. These financial instruments are traded on stock exchanges in many countries, including the derivatives market of the Moscow Exchange.

Features of futures

To understand how to trade futures, you need to know the features of this instrument. Futures contracts are distinguished by the following principles:

1. Transactions are concluded within the framework of the exchange.
2. Futures are a unified contract, the terms of which are established at the conclusion of the transaction.
3. The execution of futures is regulated by the exchange through a margin system.
4. Receipt of dividends on transactions is guaranteed due to the possibility of early fulfillment of obligations.

Futures contracts have the following advantages for traders:

• simplified payment system;
• instant transaction conclusion;
• the possibility of participation in trading by persons who do not have assets on the exchange;
• small commission (compared to stock trading);
• leverage;
• high liquidity (at any time you can easily get rid of them by selling);
• the opportunity to enter the market with minimal capital (for example, the derivatives market of the Moscow Exchange - from 10 thousand rubles).

Guarantees for the performance of futures contracts are provided through the formation of an insurance fund. All futures have a certain agreement period, after which an asset must be delivered at a fixed price and a certain financial result must be obtained. The purpose of a futures contract is to make a profit through a discount when concluding a transaction. There are futures for various types of assets that meet market conditions:

• indexes;
• goods;
• interest rate;
• exchange rates, etc.

How to trade futures and conditions for entering into transactions

To have a complete understanding of how to trade futures, let's look at how markets for these assets are organized. Futures trading takes place on futures exchanges. The entities involved in concluding a transaction are the futures exchange, the settlement firm and the client. The exchange maintains accounts of professional market participants - brokers who have contractual relationships with individuals and legal entities. All actions and calculations for the implementation of the transaction are performed by the exchange and the settlement company. The task of traders is to predict price movements. To start trading, it is important to know all the parameters of the futures contract - terms of conclusion, warranty service, time of fulfillment of obligations under the contract, cost of the contract. The number of futures for purchase is limited by the amount of funds in the client's account.

Using this financial instrument, a trader has the opportunity to conduct margin trading with large trading leverage (from 1 to 2 to 1 to 10), which determines the size of the risks and liquidity of the futures. Today, learning the technical intricacies of trading futures contracts has become much easier thanks to the introduction of modern trading platforms. The most important task of a trader is to correctly forecast and select the most highly liquid assets that can bring large profits.

It is enough to figure out how to trade futures once to appreciate the advantages of this financial instrument. Some tips that may be useful for traders new to futures trading.

• Futures for the currency pairs euro/dollar, ruble/dollar, the RTS index, Sberbank, Gazprom are considered the most highly liquid and promising from the point of view of obtaining a stable profit on the derivatives market of the Moscow Exchange.
• To build a trading strategy and competent forecasting, it is important to replenish your knowledge and practical skills by completing training. You can take advantage of high-quality courses from the section.
• The smartest way to hone your acquired knowledge is on a demo account.
• Select 2-3 markets to experiment with your trading strategies.
• In order to make your first real trade, you need to open an account with a futures broker. Choosing a reliable brokerage company can be an integral part of success in futures trading. We recommend paying attention to a company that allows you to enter into futures transactions from one account both on the Moscow Exchange and on other global futures platforms (including the Chicago CME Exchange).
• Setting a risk limit will allow you to control the size of your account and prevent uncontrollable losses.

Welcome to the Beginner's Guide to Futures Trading. This guide provides a general overview of the futures market as well as descriptions of some of the tools and techniques common to the market. As we will see, there are futures contracts that cover different classes of investments (eg stock index, gold, orange juice). We won't go into detail about each of them.

It is suggested that if you decide to start trading futures after reading this guide, you will spend some time learning about the specific market (that you decide to trade). As with any endeavor, the more effort you put into preparing, the greater your chances of success will be!

Introduction

Futures can be used both to effectively hedge other investment positions and for speculation. This carries the potential for good profits associated with the use of leverage (we will discuss this issue in more detail later). However, let's not forget that using leverage is always associated with increased risk. Before you start trading futures, you must not only prepare as theoretically as possible, but also be absolutely sure that you are able and willing to accept financial losses.

The basic structure of this guide is as follows:

We'll start with a general overview of the futures market, including what futures are and how they differ from other financial instruments. Let's discuss the advantages and disadvantages of using leverage.

The second section provides some considerations before you begin trading, such as how to choose the right brokerage firm for futures trading, the different types of futures contracts, and the different types of trades.

The third section covers futures valuation, including fundamental and technical analysis techniques, as well as software packages that may be useful to you in futures trading.

Finally, in the fourth section of this guide, an example of real futures trading is provided. Step by step we will look at choosing an instrument, analyzing the market and executing a trade.

By the end of this guide, you should have a basic understanding of futures trading, which will allow you to decide whether this type of trading is worth pursuing. And it will provide a good foundation for further study of the futures market if you decide that such trading is right for you.

Basic structure of the futures market

In this section, we'll look at how the futures market works, how it differs from other markets, and how leverage works in it.

How the futures market works

You are probably familiar with the concept of derivative financial instruments (derivatives).

A derivative is a derivative of a financial instrument formed by the movement of its price.

In other words, the price of a derivative (a derivative of the underlying asset) depends on changes in the price of this underlying asset. For example, the value of a derivative related to the S&P 500 is a function of the price movement of the S&P 500. So, a futures contract, at its core, is a derivative.

Futures are one of the oldest derivatives contracts. They were originally designed to allow farmers to hedge against changes in the price of their produce between planting and the time the crop is harvested and brought to market. Thus, many futures contracts focus on things such as livestock (cattle) and grains (wheat). Since then, the futures market has expanded to include contracts related to a wide range of assets, including: precious metals (gold), industrial metals (aluminum), energy (oil), bonds (Treasuries) and stocks (S&P 500 ).

How do futures differ from other financial instruments?

Futures have several differences from many other financial instruments.

First, the value of a futures contract is determined by the movement of something else—the futures contract itself has no “inherent” value.

Secondly, futures have a limited lifespan. Unlike stocks, which can last forever (or as long as the company that issued them exists), a futures contract has an expiration date, after which the contract ceases to exist. This means that when trading futures, market direction and timing are vitally important. Typically, when you purchase a futures contract, you will have several options for when it will expire.

The third difference is that many futures traders, in addition to making outright bets on the direction of the market, use more complex trading, the results of which depend on the relationship of the various contracts to each other (we'll talk about this in more detail a little later). However, the most important difference between futures and most other financial instruments available to individual investors is the use of leverage.

Leverage

When buying or selling a futures contract, the investor does not have to pay for the entire contract. Instead, he makes a small down payment to initiate the position. As an example, let's consider a hypothetical trading of a futures contract on the S&P 500. The value of one point of the contract on the S&P 500 is $250. So, if the S&P level is 1400, then the value of the futures contract is $350,000 ($250 X 1400). But in order to start trading, you only need to make an initial margin of $21,875.

Note: Initial and maintenance margin levels are set by exchanges and are subject to change.

So what happens if the S&P 500 level changes? If the S&P level rises to 1500 (an increase of only 7%), then the contract will already be worth $375,000 ($250 X 1500). In other words, the contract value increased by $25,000 ($375,000 – $350,000 = $25,000). And the investor will put this difference in his pocket with a clear conscience. Thus, with an initial investment level of $21,875, he will earn $25,000 in net profit (profitability of more than 100%). The ability to achieve such large returns, even with a small change in the price of the underlying index, is a direct result of leverage. And it is this opportunity that attracts many people to the futures market.

Let's now look at what could happen if the S&P 500 falls in value. If the S&P fell ten points to 1390, the contract would be worth $347,500 and our investor would have a loss of $2500. Each day, the exchange would compare the value of the futures contract to the client's account and either add profits or subtract losses . The exchange requires an account balance to remain above a certain minimum level, which in the case of the S&P 500 is $17,500. So in our example, the trader would have a paper loss of $2,500, but would not be required to post additional cash to keep the open position.

What happens if the S&P falls to 1300? In this case, the futures contract would be worth $325,000 and the client's initial margin of $21,875 would be wiped out. (Remember that leverage works both ways, so in this case, a little more than a 7% drop in the S&P could result in the investor losing money entirely). In this case, either the investor deposits funds to replenish the margin, or the contract is closed at a loss.

Considerations before trading

Before you start trading futures, let's cover a few important things. First of all, you must decide on the choice of broker, the types of futures you will trade and the type of trading. But first things first.

Choosing a brokerage firm

First of all, you need to decide on the choice of broker. You can choose a full-service broker who will give you a high level of service and advice, but this will likely be quite expensive. Or you can choose a discount broker that provides a minimum of services, but for small commissions. It all depends on your preferences and level of wealth. Probably many readers of this article are private traders and investors for whom a discount broker is the best option.

As always, when choosing a broker, make sure you approach this issue carefully, especially if you have not encountered this “beast” before. Important considerations include commission rates, margin requirements, trade types, software and user interface for monitoring and trading, and quality and speed of customer service.

You can read more about choosing a broker in the article: ““.

Futures Market Categories

If you trade stocks, you know that there are many different industries (e.g. technology, oil, banking). While the mechanics of trading for each industry remain the same, the nuances of the underlying industries and businesses vary widely. It's the same with futures. All futures contracts are similar, but futures contracts track such a wide range of instruments that it is important to be aware of the existing categories. For a better understanding, it is helpful to compare futures categories to industries in the stock market and each stock futures contract. The main categories of futures contracts, as well as some common contracts that fall into these categories, are listed below.

1. Agriculture:

• Cereals (corn, oil, soybeans)
• Livestock (cattle, pigs)
• Dairy (milk, cheese)
• Forest (wood, cellulose)

2. Energy:

• Raw oil
• Heating oil
• Natural gas
• Coal

3. Stock indices:

• S&P 500
• Nasdaq 100
• Nikkei 225
• E-mini S&P 500

• Euro/$
• GBP/$
• Yen/$
• Euro/Yen

5. Interest rates:

• Treasuries (2, 5, 10, 30 year)
• Money markets (eurodollar, fed funds)
• Interest Rate Swaps
• Barclays Aggregate Index

6. Metals:

• Gold
• Silver
• Platinum
• Non-ferrous metals (copper, steel)

You can trade in any of these categories. To start, you may want to consider something that is already familiar to you. So, for example, if you have been trading stocks for many years, you can start your futures trading with stock indexes. In this case, you already know the main forces driving the stock market, and all you have to do is learn the nuances of the futures market itself. Likewise, if you worked for Exxon for thirty years, you might want to initially focus on energy, since you probably understand what drives the direction of the oil market.

Once you have chosen your futures market category, the next step is to determine which instruments you will trade. Let's assume that you decide to trade instruments in the energy category. Now you must decide which contracts to focus your attention on. Does your interest lie in crude oil, natural gas or coal? If you decide to focus on crude oil, you can choose from West Texas Intermediate, Brent Sea, or a variety of other options. Each of these markets will have its own nuances: different levels of liquidity, volatility, different contract sizes and margin requirements. It is imperative that you decide on these points before starting a career in the futures market.

Types of transactions in the futures market

At the simplest level, you can buy or sell a futures contract with the expectation that its price will rise or fall. These types of trades are familiar to most stock market investors and are easy to understand. Thus, direct buying and selling is probably a good idea to get started with futures trading. Once you have made some progress in futures trading, you will probably want to use some of the more advanced futures trading techniques. Since this is a beginner's guide, we will not consider these methods in detail, limiting ourselves to only a brief description of them. You can get acquainted with them in more detail in the relevant sections of this site. Types of trades that professional futures traders typically use:

• A trader opens a long (short) position in the futures market and at the same time a short (long) position in the money market. This is a bet that the difference between the futures price of a commodity and the commodity itself will fluctuate. For example, a trader can buy 10-year US Treasury bond futures and at the same time sell the 10-year US Treasury bond itself. Thus, he will have two open positions, one to buy (long), the other to sell (short). Prices for both positions, for obvious reasons, will move almost synchronously, but fluctuations between them are also inevitable. With these fluctuations, the total profit “on paper” will be either positive or negative. The trader, of course, is interested in those fluctuations in which the total profit is positive, and he closes both positions on them, taking the jackpot;
• A trader opens long and short positions on two different futures contracts. This is a bet that the price difference between them will change. For example, a trader might buy an S&P 500 contract for March delivery and sell an S&P 500 contract for June delivery. Or buy a contract for West Texas Intermediate (WTI) oil and sell a contract for Brent Sea oil. The logic of making a profit here is the same as in the previous paragraph;
• Futures are often used for hedging. For example, if you have a large holding of stocks that you don't want to sell for tax reasons, but you're afraid of a sharp market decline, then you could sell S&P 500 futures as a hedge against a decline in the stock market.

Preliminary market analysis

In order to select a futures contract for speculative trading or before concluding a particular transaction with the selected futures, it is necessary to conduct at least a cursory analysis of the current market situation. Currently, the most popular methods for studying the current and forecasting the future market situation are fundamental and technical market analysis.

Fundamental analysis of futures

This type of analysis is aimed at examining a variety of micro- and macroeconomic indicators that could potentially affect the future prices of futures contracts. Since the futures price has a strong correlation with the price of its underlying asset, all those factors that in one way or another can influence the balance of supply and demand in relation to the underlying asset are examined.

For example, if we are talking about currency futures, then the main factors that can influence them are such important indicators of the FOREX market as interest rate levels, inflation and deflation indicators in countries whose national currencies make up the currency pair under study. Various types of macroeconomic news published both on a regular basis (so-called) and spontaneous news have a great influence.

Typically, fundamental analysis of the stock market is carried out from top to bottom: first, macroeconomic factors that influence the state of the economy as a whole are considered, then the situation in the industry to which the issuer of the underlying futures asset belongs is analyzed, and finally the condition of the company itself (the issuer of the underlying asset) is assessed.

You can get acquainted with the basics of fundamental analysis by clicking on the link: "".

Technical analysis of futures

This type of analysis is carried out exclusively using price charts. A technical analyst is not particularly interested in how the underlying fundamental indicators change, since in his work he is guided by the basic postulate of technical analysis:

The price on the chart already includes and reflects absolutely all those factors that can influence it in one way or another.

Another basic postulate of technical analysis is the statement that the price tends to move in the so-called. That is, in other words, at any current moment in time the price is in one trend or another (upward or downward) trend. And even if you see a clear absence of a trend on the chart (the price is in a flat), this only means that only a small section of the entire price chart is open to you and in fact the current flat is nothing more than a consolidation zone before the next reversal of the trend present on chart with a large .

Trends visible on charts of small time frames are nothing more than components of trends on charts of large time frames. So a downward trend on a chart with a period of M5 (five minutes) may be just part of an uptrend on a chart with a period of H1 (hour), take a look at the figure below:

In addition, technical market analysis has a whole range of tools called indicators.

In general, a technical indicator is the quintessence or distillation of the entire price chart for a certain period of time.

Thanks to the use of modern computing power, it is possible, as they say, to examine the price chart from different angles and in different aspects. Indicators are built based on price chart data and are designed to simplify the process of analyzing the entire huge array of data of its components.

The result of the indicator is usually a buy signal (indicating that the price will rise) or a sell signal (indicating an impending price decrease). These kinds of signals coming from individual indicators are very unreliable, and therefore their use makes sense only in conjunction with other technical analysis tools (with other indicators, support/resistance lines, patterns).

Case Study

Now that you are familiar with the concepts and tools of futures trading, let's look at a hypothetical step-by-step example.

Step 1: Select a brokerage firm and open an account. For this example, we will use brokerage firm “XYZ” and open an account there.

Step 2: Decide which category of futures you will trade. For this example, let's decide to trade metal futures.

Step 3: Decide which instrument from the selected category to trade - let's choose gold.

Step 4: Conducting research on the selected market. This research can be fundamental or technical in nature depending on your preference. Either way, the more work you put in, the more likely you are to succeed in trading.

Step 5: Form an opinion about the market. Let's say that after conducting our research, we decide that gold is likely to rise from its current level of approximately $1675/oz to $2000/oz over the next six to twelve months.

Step 6: Determine how best to express our opinion. In this case, since we believe the price will rise, we want to buy a gold futures contract - but which one?

Step 7a: Check out the available contracts - there are two gold contracts. The standard contract is for 100 ounces, and the electronic micro contract (E-micro) is for 10 ounces. To manage our risk in our initial foray into the futures market, we will select the E-micro 10oz contract.

Step 7b: Evaluate available contracts. We then select the month in which the contract expires. Remember, with futures it's not enough to understand market direction, you also have to understand timing. A longer contract gives us more time to “get it right” but is also more expensive. Since, according to our opinion formed in paragraph 5, the price will increase in the period from six to twelve months, we can choose a contract expiring in eight or ten months. Let's choose ten months.

Step 8: Execute the trade. Let's buy a 10 month E-micro gold contract. Let's say the contract is worth $1,680.

Step 9: Let's take into account the initial margin. In this case, the margin will be $911 (this is the amount of money that ensures that we own one E-micro gold contract thanks to leverage).

Step 10: Set a stop loss. Let's say we don't want to lose more than 30% of our bet, so if the price of our contract falls below $625, we will sell.

Step 11: Monitor the market and adjust your position if necessary.

Note: This example is purely hypothetical and does not constitute a recommendation for action. These are the basic steps to perform futures trading. As you gain experience and knowledge, you will probably develop your own system that suits you completely.

Our publishing house has been looking for a book for a very long time that can qualitatively and productively tell the Russian audience about futures. Finally, such a book was found, and now it is this book that you hold in your hands. Despite the popular form of the publication, it contains the most complete information about derivative financial instruments - futures and options, explaining what they are, how to use them, what advantages or disadvantages a particular trading asset has. (The third edition of the book was published in 1997)

Todd Lofton. Futures trading basics. – M.: IR Analytics, 2001. – 296 p.

Download the abstract (summary) in the format or

Chapter 2: Basic Terms and Concepts

A futures contract is a standardized forward contract that can be canceled by either party by paying cash compensation for a transaction in the futures market.

Buying a futures contract is called going long or holding a long position. The rules governing futures trading allow you to sell a futures contract before you buy it. In this case, you are said to have a short futures contract or a short position. You will be expected to deliver the actual commodity if you hold a short futures position until the delivery date. To cover a short futures position, you buy an identical futures contract on the exchange. So you exit the market. In the futures market, for every long position there is a short position.

Long and short positions are what most differentiate futures markets from stock markets. Most stock market investors buy shares for dividends, hoping that they will be revalued by the market. Profits on one side of the futures markets come from someone's pocket on the other side of the market. What the long side gains, the short side loses and vice versa. This may be a sobering factor: if you make money in the futures markets, remember: it doesn't appear out of thin air - you take it away from another player.

The cash or spot price of a commodity is the price at which the actual commodity is bought or sold in the market at the present time. The futures price is the price at which futures contracts change hands. Cash and futures prices for a particular commodity do not deviate too far from each other. The clearinghouse makes it possible to close out a futures position simply through an offsetting transaction in the futures market.

Chapter 3: Futures Markets Today

Futures prices for different delivery months of the same commodity do not always move together. Although there are other reasons, the main reason for the discrepancy is seasonality. Futures prices are considered “normally” aligned when the prices of each subsequent delivery month are higher than the prices of the previous delivery month (Figure 1).

Rice. 1. Normally constructed prices of futures contracts for wheat

December wheat is priced higher than September wheat, March is priced higher than December, and so on until the anticipation of a new harvest pushes July wheat below all other supply months. The difference between the price of September and December wheat is 10 cents. This difference is the cost of storing real wheat over a 2-month period. This includes the cost of storage space and the cost of insurance against losses due to dampness or rodents.

If the price difference between 2 months of supply turns out to be much greater than the actual storage costs, arbitrageurs operating in this market will see an opportunity to make a sure profit for themselves. They will buy (undervalued) upcoming futures and sell (overvalued) distant futures. When nearby futures come due, they will take delivery. Arbitrageurs will then store the grain and deliver it to more distant futures contracts when they come due. As a result, the futures market will pay them more to store the wheat than they actually spent. Their actions will exert pressure that will ensure that prices for nearby futures rise and prices for more distant futures fall, thereby returning these two prices to their usual range.

If futures prices decline consistently over time, the market is said to be “inverted.”

Chapter 4. Speculator

A futures market without speculators is like an auction without buyers, and would work much the same way. In most markets there are many times more speculators than any other participants. It is speculators who create a liquid market. When a speculator buys or sells a futures contract, he is voluntarily exposing himself to the risk of price fluctuations. A speculator accepts risk because he expects to profit from price changes.

A simple spread consists of two positions, one long and one short, that are created over identical or economically related commodities. Therefore, the prices of these two futures contracts tend to move up and down together, with gains on one side of the spread offset by losses on the other. The goal of the spreader is to make a profit from changes in the difference between the prices of two futures contracts. In fact, he doesn't care whether the entire price structure goes up or down. What matters to him is whether the futures contract he bought goes up more (or down less) than the futures contract he sold.

Because a loss on one side is typically offset by a gain on the other, the market risk in a spread is substantially less than the risk in a pure short or long position. How well are speculators doing? It is believed that approximately 95% of private individual speculators lose.

Chapter 5. Hedger

A hedge is a futures position roughly equal and opposite to the position a hedger has in the cash market. It is also defined as a futures transaction that acts as a substitute for a later cash transaction. Hedging is possible because cash and futures prices for the same commodity tend to move up and down together. Therefore, losses on one side are offset by profits on the other. Short hedgers are those who grow, store, process or distribute the spot commodity and those who would suffer a loss from a decline in the spot price. A long hedger is someone who has promised to deliver cash goods in the future and is concerned about a possible increase in spot prices.

Chapter 6. Greens

The purpose of futures margin is to guarantee contract execution and protect the financial integrity of the market. If a futures position results in unrealized losses as a result of unfavorable price movements, additional margin may be requested. The balance of value of the futures contract is not borrowed, so no interest is paid by the holder of the margined futures position. Only funds exceeding the initial margin level are free and can be withdrawn or otherwise used.

Chapter 7. What Happens After You Hang Up

A futures order consists of the following elements: buy or sell; quantity; delivery month; goods, including the exchange, if the goods are traded on more than one exchange; any special instructions, such as time or price limits.

The simplest order, called a market order, looks like this: “Buy one June beef at market.” All other orders in the futures market are orders with a condition, i.e. contain certain conditions that must be satisfied before the order can be executed. The most commonly used limit order is: "Buy one June Treasury note at 103-20."

Orders placed at prices very far from the current market are often called "sleeping orders." There are two types of sleeping orders: stop orders And conditional market warrants.

Many traders believe that closing prices at the end of the trading day are the best reflection of the market. After all, these are the prices that buyers and sellers are willing to hold overnight. There is a special futures market order to obtain the closing price. Here's what it looks like: “Sell one March Eurodollar at MOS.” MOS is an abbreviation for market on close(market at closing). The floor broker will hold such an order until there is a minute or two left before the closing bell, at which time he will process it as a market order.

Any order that does not mention time is treated as a one-day order. This means that it expires after the end of the trading session during which it was placed. GTC is an abbreviation for good 'til canceled, which can be added to any sleep order.

Chapter 8. Arena

There are three main types of entities involved in futures trading: the exchange, the clearing house, and the futures commission merchant (FCM). There are approximately a dozen major futures exchanges in the United States. For the most part, these are private non-profit organizations owned by their members. The oldest futures exchange in the United States is the Chicago Board of Trade, founded in 1848. The youngest is the New York Futures Exchange, which opened its doors in 1978.

The trading floor, where the actual buying and selling takes place, is divided into several large circular trading rings, or yam. Each pit is dedicated to trading one or more goods, depending on the level of activity. Only exchange members can buy and sell futures contracts on the trading floor. People in the pits fall into two broad categories: floor brokers and floor traders. Floor brokers are agents; they facilitate transactions for third parties and receive a small commission. A floor trader uses his exchange membership to buy and sell futures contracts for his own account.

At the end of each trading day, the clearinghouse takes over the other side of every trade it clears. This action breaks the connection between the original buyer and the seller. A clearinghouse also performs two other vital functions: it guarantees the financial integrity of every futures contract it writes, and it controls the delivery of short sellers of futures contracts. Clearing house members' accounts are adjusted according to market conditions at the end of each trading day, and any shortfalls must be cleared by a certain time on the morning of the next business day.

FCMs, the most prominent members of the futures business, go by the names Merrill Lynch, Smith Barney and Dean Witter. FCMs connect the private individual trader to the options and futures markets. FCMs maintain accounts for public clients; they accept and store money for the client to cover the margin; execute his transactions; report their results and maintain complete records of the client's open positions, fund balances, and profits and losses.

When you open a futures or options account with FCM, you are asked to fill out and sign several forms. The most important form from your broker's point of view is called something like this: “Commodity Account Agreement.” It determines whether the account is intended for hedging or speculation.

Chapter 9. Fundamental Analysis

Coffee grounds and fortune tellers aside, there are two approaches to predicting futures prices. The first approach is to estimate supply and demand for the actual product and assumes that insufficient supply or increased demand will cause prices to rise and vice versa. This approach is called fundamental analysis.

Another approach is known as technical analysis. The technical analyst ignores any information about the supply and demand that exists for the actual product. Instead, he focuses on the futures market itself, based on the following premise: Regardless of what the fundamentals indicate, the results will show up in price action, trading volume, and open positions.

Every significant change in commodity prices in the history of futures trading is driven by fundamentals. Unless there is a real shortage or surplus of a real product, unusually low or high prices cannot last long.

For example, for an agricultural field crop, a fundamental analyst will look at planting plans, yields per acre, weather forecasts in areas where the product is grown, the likelihood of crop disease, prices of competing commodities, government lending levels, and current supply available. These same data will be reviewed for foreign cultivation areas to assess US export potential.

Chapter 10. Technical analysis

Fundamental analysis of futures markets is characterized by a large amount of subjective information - it is used to predict price movements in the next few weeks or months. A technical analyst deals with only three types of data: price, trading volume and the number of open positions. He evaluates them to form an opinion about the likely direction of price movements over the next few days.

A full-service analyst examines fundamental factors to decide whether there is room for significant price movement while using technical analysis to determine the most favorable time to enter the market.

A trend is the tendency of prices (or any other values) to move in one direction more than in another. You can distinguish an upward and downward trend. When prices do not have a clear direction, the trend is called sideways, or neutral.

Technical analysts often draw a straight line through the extreme lows on a chart when an uptrend is established (Figure 2). It is called a trend line and is used for clarity. If prices break through a well-established trend line, it is a sign that the current trend is losing momentum.

Rice. 2. The uptrend line is drawn through the extreme lows

The trend line can also be used to enter the market. If you are convinced that a good upward trend has been established and prices will continue to rise for a long time, then rollbacks to the trend line make it possible to identify logical points for taking long positions. You could place your sell stop order just behind the trend line to get out of the market immediately if prices continue to fall and the trend line is broken.

The price level where the downward movement can be expected to stop is called the price support level. The price level where the rise can be expected to stop is called the price resistance level.

Candlestick charts originated from Japan over a hundred years ago. They get their name because of their appearance: the depiction of each day's price behavior resembles a candle with a wick sticking out of one or both ends. The cylinder (candle) creates two pieces of information. Its color shows where the closing price of that day was relative to the opening price. If the close is higher than the open price (bullish omen), the candle is left white. If the close was lower than the open (indicating a bearish tone), the candlestick turns black. The length of the candle is the distance between the opening and closing prices (Fig. 3).

Rice. 3. Two candles representing two options for daily price behavior

Trading volume is the number of futures contracts that change hands during a given period - usually per day. Open interest is the number of futures contracts that are outstanding, or that have not yet been closed through an offsetting futures transaction or delivery of the actual commodity.

One long futures contract and one short futures contract together form one unit of open interest. Open interest increases when a new long buys from a new short; open interest decreases when the old long sells to the old short; open interest does not change when a new long buys from an old long, or a new short sells to an old short, since the new player simply replaces the old player.

Trading volume should follow the trend. For example, if an uptrend is strong, trading volume should increase on rallies and decrease on temporary price pullbacks. If these conditions are not met, the strength of the current trend becomes doubtful.

Open interest is a more complex, but also more valuable diagnostic tool. The behavior of the number of open positions indicator, as well as its changes relative to price fluctuations, provide an understanding of why the market is moving.

Rule 1: When price and open interest rise together, the market is considered technically strong. For the same reason, price increases accompanied by a constant or decreasing number of open positions are suspicious. The rise in prices is supported by short contract holders buying to get out of the market.

Rule 2: When prices rise with falling open interest, the market is considered technically weak.

Rule 3: If prices fall while the number of open positions increases, a bear market occurs. There are a lot of sales happening. The rise in open interest suggests that selling pressure is coming from aggressive new short contracts suddenly attracted to the market. Therefore, the conclusion about a downward price trend has a relatively solid technical basis.

In general, when price and open interest rise or fall together, the current price trend is credible. When prices and open interest diverge, the market can change course.

The philosophy, known as the contrarian view, is based on the observation that markets look most bullish near their tops and gloomiest just before they are ready to turn higher again.

There is as much art as science in identifying support and resistance levels, trends and price targets. A technical analyst must remind himself from time to time that he is dealing with mathematical probabilities, not hard facts.

Chapter 11. Hedging again

Ideally, the money lost on the cash side and the amount earned on the futures side are identical. In the real world, there are several reasons why hedging gains and losses may not be equal to each other. The most important fact is that futures and cash prices cannot move by the same amount because the two prices are subject to different influences. Cash prices respond to supply and demand for actual goods. Futures prices are heavily influenced by traders' expectations. Basis is the difference between the cash price and the futures price of a commodity. The change in basis during the implementation of the hedge is precisely the circumstance that caused the loss.

The second reason why a hedge does not provide 100% protection against fluctuations in cash prices is the indivisibility of the futures contract. Any portion of a planned futures hedge that does not have an offsetting cash position is speculation and carries speculative risk. A more conservative business decision would be to underhedge the cash position. In other words, one should strive for the greatest possible protection without creating speculative risk. Rehedging a cash position in such circumstances requires a favorable price forecast.

The third reason for an imperfect hedge is the difference between futures and spot commodities. For some commodities, especially agricultural commodities, the cash commodity being hedged may not be identical to the commodity underlying the futures contract. Finally, the delivery date of the underlying asset may not coincide with the closing date of the futures contract.

For non-standard hedging transactions, see On-call transactions.

Chapter 12. Financial futures

Financial futures fall into three general categories: foreign currency futures; stock index futures; interest rate futures.

Thanks to the advent of freely floating exchange rates, foreign currency futures trading began in 1973 on the International Foreign Exchange Market in Chicago. The company used bank forward contracts as a hedging instrument. A forward contract can be entered into for any quantity of any currency, with delivery at any time. No explicit deposit of cash margin is required. On the other hand, an important advantage of a futures contract is its flexibility. A futures position can be reduced or completely closed without additional transaction costs. Finally, futures transactions can involve significantly lower transaction costs.

A futures contract can be settled through an offsetting transaction in the futures market or through physical delivery of foreign currency. For example, Barbara Bradford, Inc. imports artistically designed buttons from Switzerland. The company has just ordered 125,000 Swiss francs worth of buttons. Its exchange rate at this time is 0.70, so the company expects the buttons to cost them (125,000 francs x 0.70 =) $87,500. It calculates base resale prices for its customers based on this value. To protect herself from possible appreciation of the Swiss franc over time, she buys one Swiss franc futures contract (contract size = CHF 125,000).

Six weeks later the buttons are received and Bradford buys 125,000 Swiss francs on the cash market to pay for them. At the same time, she sells her futures position, noting with satisfaction that the hedge has served its purpose: although the Swiss franc has risen to 0.7324, its effective exchange rate remains at 0.70, and the effective value of the buttons is $87,500.

Rice. 4. Long hedging with Swiss franc futures

Stock index represents a wide market. Changes in the index reflect price movements of many of the securities included in the index. An index can hide the price movements of individual stocks included in it. In other words, it is possible that a decline in the price of one stock will be offset by an increase in the price of another. As a result, the index will remain without movement at all. Stock index futures are of little value when hedging a small portfolio of only a few securities because there may not be a reliable correlation between index movements and individual stock price movements. However, stock index futures can be an effective hedge when used to protect against price changes in a large, diverse portfolio.

Interest rates. Today's interest rate futures markets can be divided into contracts trading short-term and long-term interest rates. Treasury Bills, the shortest-term U.S. Treasury security, are auctioned by the Federal Reserve at noon every Monday and have 90-day and 180-day maturities. It is the only Treasury security that does not have a coupon: Treasury bills are sold at a discount and redeemed at par. The difference in price determines the effective yield. Treasury bills are widely distributed, highly liquid, and therefore excellent indicators of financial market conditions.

If you buy a $1,000 US Treasury bond with an 8% coupon, it will pay you $80 per year. This dollar amount is a fixed value. However, the market price of a Treasury bond is not fixed. It changes with market conditions. If you only paid $900 for the bond, your yield would be 8.1% ($80:$900). This value is called the bond's current yield.

There is also something called “yield to maturity.” This metric takes into account that you will receive the face value ($1,000) for the bond when it matures. If you buy a bond at a price below par, its yield to maturity will be slightly higher than the current yield, reflecting the additional cash you will receive when the bond matures.

The yield curve shows the yield over time to the maturity date for homogeneous securities (Figure 5). This behavior of the yield curve is called normal. When short-term yields are higher than long-term yields, the yield curve is considered upside down. One possible reason for an inverted yield curve is investor expectations that long-term rates are about to fall sharply.

Rice. 5. The yield curve compares securities that differ only in their maturity

The prices of fixed income securities and interest rates are inversely related to each other. When interest rates go up, their prices go down; When interest rates fall, the prices of fixed income securities rise. Interest rate futures markets reflect this inverse relationship. Interest rate futures express the value of the underlying instruments rather than the interest rates themselves. Falling interest rates mean higher prices for Treasury bill futures. A speculator expecting interest rates to fall buys interest rate futures. A speculator expecting interest rates to rise sells interest rate futures.

Chapter 13. Money management for speculators

Poor futures trading is almost always rooted in poor money management. Anyone can make a mistake when assessing the market. But it's another thing entirely to let a bad futures position eat up your trading capital. The philosophy is summarized in the proverb: cut your losses and let your profits run.

The difficulty with closing a losing position is that you have to admit to yourself (and your broker) that you were wrong in your assessment of the market. The greater the loss, the more face you lose. Additionally, paper losses are converted to realized losses. Money that was previously only in danger is now gone forever. You can no longer hold out hope that tomorrow the market will turn around to save you.

A USDA study of actual trading results found that holding losing positions for too long was one of the main reasons speculators lost money. The willingness to quickly close a losing position is the main secret of the futures trader's success formula.

Simply making a preliminary decision about the amount of loss you are willing to incur in a trade will significantly increase your chances of success. A stop order is placed at some level above or below the current price to close a threatening position without further action or decision on your part. A stop order not only reduces losses, but also allows you to grow profits. No profit is taken if the price level stated in the stop order is not reached. As long as the market moves in a favorable direction, the futures position remains open.

Successful futures speculators typically adhere to a few other principles:

1. Diversification. If you hold large assets in the futures markets, it is wiser not to allocate them all to one or two exchange-traded commodities.
2. Have a plan. When you take a futures position, think about what you want from it. Decide how much loss you are willing to accept and how much profit you expect to make.
3. Once you have done your analysis and made a trading decision, do not let random comments or rumors sway you. If conditions do change, of course you must change with them.
4. Psychologists have found that most of us are prone to what is called effect victims. This means that people prefer to maintain the status quo even when they have good reasons to change. In this situation, there is little you can do except be aware of this phenomenon when deciding whether to “get out” of a losing futures position.
5. Trading capital must exceed one's own capital and must not come from funds set aside for college, medical care, and old age.
6. Never add to a losing position.

Before you even hit the futures markets, you'll start receiving unsolicited mail offering books, chart analysis services, market reviews, and the like. The most expensive of the benefits offered are trading methods, which can have price tags of $2,500 or more. A trading method is usually developed and tested by an individual who then offers it for sale. It is invariably based on technical analysis. There is a big difference between trading profits in the real world and a fictitious historical report created by virtual trades using historical data.

Chapter 14. Futures options

Options on futures are traded on futures exchanges, where their financial integrity is guaranteed by the exchange and the options clearing house. The underlying assets of these options are futures contracts traded on the same exchange. Exercise of an option results in the transfer of a futures position from the seller of the option to the buyer of the option at the option exercise price.

A call option gives the right to buy an asset over a period of time at an agreed upon price. There are also options, which give you the right to sell something to someone else. These are known as put options or put options. A futures option bears the same name as the underlying futures contract (Figure 6).

Rice. 6. Futures option and underlying futures contract

Terms related to options:

• Prize. The market price of an option paid by the buyer of the option and received by the seller of the option;
• Expiration date. The day on which the option expires. After this date, the option is worthless and must be retained;
• Execution price. The price at which a futures contract changes hands if the option is exercised.

Because a call option gives the right to purchase a long position, its price increases when the price of the underlying futures contract rises. When does it become profitable to exercise a call option, i.e. It is more profitable to exercise a call option and close the resulting futures position than to buy the futures directly, then the option is said to be in-money. Therefore, a call is in the money whenever the price of the underlying futures is higher than the strike price of the option.

The value of an option is a combination of intrinsic value and time value. Intrinsic value is the difference between the option's strike price and the underlying futures price. An at-the-money option has intrinsic value. The time value of an option represents the amount that market participants are willing to pay for the time remaining in the option's expiration date. The more days left until the option expires, the greater its time value should be.

Another factor influencing prices is the volatility (changeability) of the underlying futures price. Option buyers hope that the price of the underlying futures will move in a favorable direction, so the value of the option will increase. If the price of the underlying futures does not move, but instead trades quietly in a narrow range, buyers' hopes are dashed. Therefore, buyers are willing to pay more for options traded on moving futures, and option sellers similarly insist on receiving a higher price for them.

The option buyer's risk is limited to the price he paid for the option. No matter how far prices move in an unfavorable direction, the option buyer will never receive a call for additional margin. The worst that can happen is that the option expires with no value and all the premium paid for it is lost.

The known amount of limited risk in advance makes a futures option a more conservative investment than a simple long or short futures position. On the other hand, futures prices just don't need to move for you to lose all of your out-of-the-money option premium. An option is a typical insurance policy. If the insured event does not occur, you have lost the insured amount.

Selling options is essentially completely different from buying them. If you sell an option short and do not have the underlying futures position, the sale is treated as uncovered. You must provide option margin to achieve this. In addition, you may need to add additional margin funds if prices go against you, and your market risk is practically unlimited.

If you have an underlying futures position, for example if you sell a silver call option short and have a long silver futures position, the sale is considered covered. Of course, you need to margin the futures position, but you shouldn't margin the short call option because you already have the asset (the long futures position) to deliver to the option buyer if it comes to exercise. This is considered a more conservative options strategy and is generally used by non-professional traders.

You can also open spread positions made up of options. A bull call spread is opened when the price of the underlying futures contract is expected to move up. A call with a lower strike price is bought (traded at a higher premium) and a call with a higher strike price (traded at a lower premium) is sold. As a result, both open trades create a debit strategy that requires some cash to cover. This money constitutes the spreader's maximum market risk.

A bull call spread makes maximum profit if the futures are anywhere above the highest strike price at option expiration. It generates maximum loss if futures prices at option expiration are anywhere below the lowest strike price.

Hedging with options. Greek letters are used to represent various aspects of an option's behavior. Delta- a decimal number expressing the response of the option to a change in the futures price. If the option premium rises by 1 when the futures price rises by 1, then the delta is 1.00. It follows that in-the-money options have high deltas and out-of-the-money options have low deltas.

A futures hedge promises to be more effective if cash prices remain unchanged or move in an unfavorable direction. An options hedge promises to be more effective if cash prices move sharply in a favorable direction.

Chapter 15. Rules and instructions

Futures contracts not settled by the end of the year are valued based on market conditions. They pay income tax on net unrealized profits less unrealized losses. It is as if each futures contract was sold at fair market price on the last business day of the year. All capital gains are taxed as ordinary income. Hedges are exempt from the rule market adjustment. Hedges created to protect property, debts or other assets in the normal course of business produce normal profits or losses.

Chapter 16. Briefly about contracts

Currencies. Futures contracts are traded on the International Monetary Market (IMM - International Monetary Market - a division of the Chicago Mercantile Exchange). The factors affecting the prices of foreign currencies in world markets are determined by the relative rates of inflation in different countries, foreign trade balances, interest rates, government intervention and the rate of economic growth.

High inflation rates create distrust in the currency. A country experiencing severe price inflation will inevitably pay for it by weakening its currency relative to the currencies of other countries. If a country buys more than it sells, it has an “unfavorable” balance of foreign trade. Capital is flowing out of the country. As a result, the demand for its currency compared to the currencies of its counterparties decreases, and this causes the value of the national currency to decline.

Foreign currency prices also reflect comparative interest rates. If a country has high interest rates, foreigners will invest their money in it. This creates demand for the currency and causes it to appreciate relative to the currencies of nations where lower interest rates attract fewer foreign investors. A country experiencing healthy economic growth similarly attracts foreign investment.

Most government actions today are taken in the name of stabilizing relations with foreign currencies. This does not exclude the possibility that one day it (the state) may exercise its considerable powers to impose quotas, tariffs, embargoes or take other actions that will have a significant and immediate effect on foreign exchange rates.

Energy. In terms of total product value, oil is the biggest business in the world. Crude oil is the most actively traded physical commodity futures contract.

Oil futures markets were created in the mid-1970s. in response to sudden price changes caused by oil embargoes declared by the Organization of the Petroleum Exporting Countries (OPEC) in 1973 and 1974. Crude oil is the basis for the production of all petroleum products. Once extracted to the surface, gas and water are removed from the oil; the raw materials are sorted based on sulfur content and density and transported to refineries. Futures are traded for crude oil, No. 2 fuel oil, unleaded gasoline and natural gas (Figure 7).

Rice. 7. Crude oil contracts

Gasoline futures are part of a refinery spread, in which a refiner buys crude oil futures and sells gasoline futures, thereby locking in his margin in advance.

Natural gas can be found in all parts of the world. The leading producers, in order of importance, are: the United States, CIS countries Canada, Romania, Mexico, Italy and Venezuela. The United States accounts for a quarter of the world's gas production and consumption. The natural gas delivered to your home by your local gas company is purified to 93% methane, which is colorless and odorless. Sulfur compounds (mercaptans) are added to it to give a specific odor that warns of gas leaks.

Metals. South Africa is the largest gold producer, accounting for approximately 65% ​​of annual global production. The former USSR follows closely behind, producing approximately 15%. The demand for gold has several aspects. One of the most important is the demand for jewelry, which reflects the level of global discretionary purchasing power. The prospect of lower interest rates may prompt purchases of gold in anticipation of increased business activity and an overall increase in economic prosperity. The sale of gold by central banks to purchase foreign currency also affects the price of gold. Increasing the production of this metal has a reducing effect. Changes in inflation pressures, as measured by popular indexes, can cause investment demand for gold to rise or fall.

Chapter 17. Futures on the Internet

The supplements contain a more detailed overview of technical analysis models, methods for constructing a tic-tac-toe chart, a description of the moving average method and stochastic analysis.

The article is not mine, but it will be very useful for those who want to understand the basics of futures trading. I made only minor edits and a comment at the end.

What you need to know

What do you need to know before you start trading futures so that you don’t foolishly lose money, not bring the transaction to real delivery and not ruin your relationship with the broker? Where to start if you want to work in the international derivatives market? Where can I find the information I need?

Let's look at the entire process that begins with an uncontrollable desire to invest in a specific commodity asset and ends with a transaction, using the example of one of the actively traded futures contracts. For the sake of example, we will assume that a beginner has decided to invest in gold, but all the reasoning and algorithms given below will be relevant for other derivatives market instruments, be it oil, platinum, beef, wheat, timber, coffee, and so on.

So, first of all, we find out the ticker of the instrument. To do this, we go to the exchange website - with 99% probability, the required instrument will be found either on CME (www.cmegroup.com) or on ICE (www.theice.com), these are the two largest exchange holdings. Look at the “Products” section or menu item. On the CME website in the menu we find the desired subsection “Metals”, where in the “Precious” column we see the gold futures “GC Gold”. On the page dedicated to gold futures that opens, we find a link to the contract specification - “Contract Specifications”, which we will need more than once. This table summarizes all the basic universal data on the futures, including the ticker, it is in the “Product Symbol” line - GC.

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Next, we need to find out which futures with delivery in what month is now the most liquid - after all, as you can see in the “Listed Contracts” specification line, more than 20 gold contracts with different delivery dates are traded in parallel. In order to find the most actively traded one, let's go to the "futures" section on the BarChart website. This site is good because, in addition to the months, it immediately shows their stock symbol. On the left we find the “Metals” section we need, select the first line “Gold” in the table that opens.

After this, we will see all 20 “gold” contracts quoted for 5 years in advance. We need the “Volume” column, where we find the largest volume. If the volumes of two neighboring months are almost equal, then we choose the distant one, since this means that there is a process of transition from the nearby month to the next. Typically, the most liquid futures are traded for delivery 1-2 months from the current date. In our case, the most active is June 2012. Its full ticker, as can be seen in the first column, is GCM12. That is, M12 is added to the GC stock ticker found in the previous paragraph - the month and year code. The month is always indicated by one letter (full list of 12 characters in calendar order: F,G,H – J,K,M – N,Q,U – V,X,Z). The year in the code is indicated by the last two digits.

Last day of trading and start day of deliveries

The next thing you need to know is the last day of trading and the day the futures deliveries begin. Especially if the delivery will not be in 2-3 months, but already in the current one. Knowing these dates is necessary in order not to be left with a contract in your hands in the last hours of its existence. With this development of events, at best, you will have to close it on an illiquid market with huge spreads, and at worst, you will run into a supply and wonder how to pay for a box of gold bars and where to sell them later.

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It is recommended to switch from one contract to another at least several business days before the start of delivery if futures are traded monthly, and one and a half to two weeks if they are traded quarterly. In order to see the dates for the end of trading and the start of delivery requirements (LTD, Last Trading Day and FND, First Notice day), we return to the exchange website, to the specifications page. We find there the “Product Calendar” link, which gives us another table. In it we look at the line corresponding to our financial instrument - JUN 2012 GCM12 - and see that the last day of trading for it is 06/27/11, and the start of requests for delivery is already 05/31/11. Thus, it is necessary to close this contract and open the next one a couple of days before the end of May.

Financial questions

Let's move on to financial issues. We need to determine how many contracts we can purchase based on the amount of funds in our trading account, and whether there will be enough money left there in case the market suddenly goes against us after the transaction. Such settlements in the derivatives market are carried out on the basis of margin collateral.

When opening a position on any contract, an amount is fixed in the account, the size of which is determined by the exchange and changes quite rarely. This amount will become unavailable for use for the entire time we are the owner of the fixed-term contract and will be released immediately after its closure. On the exchange website, huge tables of margins are not very pleasant to read, so we go to the R.J.O’Brien website, where a convenient summary table of margin margins for the most popular contracts is stored (in pdf format). Our GC gold futures are listed on the CMX - COMEX section (this is the part of the CME that historically deals with precious metals). We look at the “Spec Init” column, this is Initial Margin - the initial margin. In gold it is now $10.125. This means that with an account of $15,000 we can operate with only one contract, with an account of $35,000 - no more than three. The next column “Spec Mnt” is the Maintenance Margin, in our case $7,500. If the account falls below this amount (multiplied by the number of contracts available), an angry broker will call (“Hello, Margin Call!”), and you will have to either close the position (i.e., record losses) or promptly deposit additional money into the account ( to a level not lower than the initial margin).

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A break during work

Despite the fact that electronic trading in futures takes place almost around the clock, they have a break in their work. In addition, they are not active at any time of the day. In the specifications on the exchange website, you need to look at the trading hours (line “Hours”), not forgetting to convert them to local time. The GC gold contract is traded with a 45-minute break (16:15 - 17:00 in Chicago; for Moscow the difference is -9 hours).

The most active electronic trading practically coincides in time with classic trading on the exchange floor, which is conducted in the form of an open auction. For gold, trading “on the floor” of the Chicago Exchange takes place on weekdays from 7:20 to 12:30, or from 16:20 to 21:30 Moscow time.

What else might you need?

From the data published in the specification, you can calculate the cost of the minimum price step, the full value of the contract and trading leverage. To do this, we will use the lines “Contract Size” and “Minimum Fluctuation”. The volume of 1 contract for GC gold is 100 troy ounces (approximately 3.1 kg). The minimum price movement is $0.10 per ounce. This means that with a minimal movement in the price of gold in any direction, our account will “quantum” change by $10 (100 ounces * 10 cents). From personal experience, most financial instruments on the derivatives market trade at $5 - $15 per tick. Next, let's look at the dimension of the quote - in the line “Price Quotation” we see that the quote published on the exchange is the price of one ounce of gold in dollars and cents. Currently, one ounce, based on the last exchange transaction on GCM12, is valued at $1672.9 - we can see this and other quotes on the “Quotes” page. The total value of the contract is equal to its volume multiplied by the quotation. This means that the total value of one “gold” futures in your account is $167,290 - more than 167 thousand dollars! By comparing the margin required to trade this contract and its full value, we calculate the leverage - $10,125 to $167,290 - it is approximately 1: 17. For comparison, in the US stock market, leverage is at best 1: 4.

So, now we know how futures are designated, for which delivery month the most active trading is conducted and when it ends, what time of day is best to participate in exchange trading and how much money you need to keep in your account for this. Using the example of a transaction with gold futures, we analyzed almost the entire algorithm for starting trading. In principle, this knowledge is enough to buy and sell any futures contracts in electronic trading in the United States.

To the questions “So, after all, should I buy or sell? and when exactly?” answer fundamental and technical analysis, which is the main topic of hundreds of books on trading. And the last piece of advice for beginners - don’t forget to get an “emergency” telephone number from your broker for the Trading Desk department, which will allow you to urgently place an order or close a deal if Internet access suddenly disappears or the computer with the trading platform fails.
Happy trading!

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My comment

Everything in the article is written in sufficient detail and clearly, but I would like to focus on some issues.

Futures trading is very similar to Forex trading with some differences. There are 4 main features:

1) Futures have an expiration date (delivery date of the commodity). If a transaction on Forex can be held indefinitely, then on the futures market, in a month (or quarter) the trading position will be automatically closed.

2) Swaps are not charged on futures. They are already included in the price of the futures contract itself.

3) Instead of leverage, “collateral margin” is used (this is an analogue of leverage). The collateral may be different for different contracts! Keep this in mind.

4) The cost of a point (tick) in futures can also vary greatly between different contracts.

In all other respects, futures are similar to Forex. Profitable strategies, training, videos - all this is equally applicable in both places.

One of the most common trading platforms for futures trading is quik. Simple - no frills, but suitable for dummies.

By the way, be prepared to pay for the trading platform! Yes Yes! This Forex trading terminal is provided for free...

One of the most popular trading instruments among Russian traders is RTS index futures. There are also currency futures (analogous to FOREX currency pairs).

I also recommend that you familiarize yourself with the specifications (codes) of futures!
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