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Futures
What is a Futures Contract?
A futures contract is an agreement between two parties, one to buy and the other to sell a fixed quantity and grade of a commodity, security, currency, index or other specified item at an agreed-upon price on or before a given date in the future.
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Futures - Stocks - Options - ETFs

       
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  QUOTE HIGHLIGHTS
 
   
 
 
 
Futures Quotes        
   
  Economic Needs that gave rise to Futures Markets
    Organized Futures Exchanges became established as a key tool in Risk Management.
    Futures Markets allow traders, speculators and investors to participate in the price discovery
    process, making the entire market place more efficiency.
     
  Requisites of a Futures Market
    Organized Futures Exchanges became established as a key tool in Risk Management.
    Futures Markets allow traders, speculators and investors to participate in the price discovery
     
  The Uses of Futures
    Organized Futures Exchanges became established as a key tool in Risk Management.
    Futures Markets allow traders, speculators and investors to participate in the price discovery
         
         
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FUTURES MARKETS

A Future Contract

A futures contract's specification details (also called: contract specs) include the type, quality, and quantity of the underlying asset or commodity, months traded, daily limits, minimum tick increments, trading hours and other details unique to each product. All contract specs can be found online at the exchange trading the contract.

The underlying assets of futures contracts are agricultural commodities, metals and minerals, energy, such as oil and coal, currencies, and what are called financial futures: fixed-income securities and stock market indexes. Financial futures are, by far, the largest market for futures.

The futures price is the price paid at the specified date for the commodity. The exchange sets allowable grades for agricultural commodities, such as No. 1 soft, red wheat or No. 2 hard winter wheat

Contract Maturities

Like options, futures contracts have a limited lifespan, known as contract maturities. Most contracts expire in less than a year, which is why the expiration month is sufficient to determine the expiration date. However, a few contracts last longer—sometimes more than 2 years, such as the CME Eurodollar futures. A good many contracts expire quarterly—in March, June, September, and December. Futures contracts also have a day in the expiration month designated as the last day of trading. For instance, the September CME Canadian Dollar futures contract's last day of trading is the business day immediately preceding the 3rd Wednesday of September.

Market Prices

The prices for futures and options on futures can be obtained from major newspapers or from the Internet. Newspapers group the contract listings by their underlying asset: grain, oilseed, livestock, food, metal, petroleum, interest rates, currencies, and index futures. Some of the contract terms are also specified, such as quantity or quality.

While price listings are much like stocks or options, there are 2 prices quoted for highest and lowest value since the contract started trading, called the Life-of-Contract High and Life-of-Contract Low. The closing price for the day is known as the settle price.

The Mechanic of Order Flow

The old method, and still commonly used method of trading futures is, after sending an order to a broker, the broker sends it to the trading floor of a futures exchange for that particular futures contract, where floor traders and exchange members, through hand and visual signals—the so-called open outcry method—transmit buy and sell orders. Open outcry trading also uses electronic tickers and display boards, hand-held computers, and electronic entry and reporting of transactions. The display boards also show quotes from other American futures exchanges.

The exchange has trading pits, where buyers and sellers standing on steps that descend into the pit shout orders and signal the orders with their hands. Each pit specializes in a specific commodity, and is the only place to trade that commodity. Options on that futures commodity are typically located in an adjacent pit. Workstations surround each pit provide members of the exchange a communication link to brokers and large institutional investors. These orders are then either flashed to the trading specialist through hand signals, or delivered to the pit by runners. Different sections of the pit correspond to different contract expiration months, with the nearest month, by far the most actively traded, occupying the largest section.

Electronic trading predominates both worldwide and in the US, where buy and sell orders are matched or queued in computerized trading systems. Matches are executed immediately; unmatched orders are queued by price, with the highest price listed as the current bid price, and the sell order with the lowest price as the current ask price. Buy or sell orders with the same price are queued on a first in/first out (FIFO) basis.

At least 65% of all futures exchanges are outside of the United States, and most trade electronically. Worldwide competition is forcing the US futures exchanges to go electronic, since electronic trading is faster and cheaper. However, open outcry trading still has significant, albeit dwindling, volume, as exchange members cling to their vested interest in floor trading. At CME, for instance, some contracts trade simultaneously on the floor and electronically; other contracts, on the floor during exchange hours, then electronically other times; while other contracts are only traded electronically.

The CME Globe, first operational in 1992, was the 1st electronic derivatives market, and is operational at all hours from Sunday evening to Friday afternoon

Difference Between Exchange and Clearinghouse

An exchange is a marketplace for trades, one that provides the match making engine and players that bring liquidity. When trades are executed and matched off, there needs to be a bank or other financial institution that will do the net settlement of funds, this is a clearing house

clearing house is an intermediary between buyers and sellers of financial instruments. Further, it is an agency or separate corporation of a futures exchange responsible for settling trading accounts, clearing trades, collecting and maintaining margin monies, regulating delivery, and reporting trading data.

 
         
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