The subject of a futures transaction is a futures contract - a document defining the rights and obligations to receive or transfer property (including money, currency values ​​and securities) or information, indicating the procedure for such receipt or transfer. However, it is not a security). A futures contract cannot simply be cancelled, or, in exchange terminology, liquidated. If it is concluded, it can be liquidated either by concluding an opposite transaction with an equal quantity of goods, or by delivering the stipulated goods within the period stipulated by the contract.

The rules for trading under futures contracts open up opportunities: the seller retains the right to choose - to deliver the product or buy out the futures contract before the delivery date of the goods; buyer - accept the goods or resell the fixed-term contract before the delivery date.

The main features of futures trading are:

the fictitious nature of transactions, in which purchase and sale is completed, but the exchange of goods is almost completely absent. The purpose of transactions is not the use value, but the exchange value of the product;

predominantly indirect connection with the market for real goods (through hedging, and not through the supply of goods);

complete unification of the use value of a product, the representative of which is potentially an exchange contract, directly equated to money and exchanged for it at any time. (In the case of delivery under a futures contract, the seller has the right to supply goods of any quality and origin within the framework established by the rules of the exchange);

complete unification of conditions regarding the quantity of goods allowed for delivery, place and timing of delivery;

impersonality of transactions and the replaceability of counterparties for them, since they are concluded not between a specific seller and buyer, but between them or even between their brokers and the clearinghouse - a special organization at the exchange, which takes on the role of a guarantor of the fulfillment of the obligations of the parties when buying or selling by them exchange contracts. At the same time, the exchange itself does not act as one of the parties to the contract or on the side of one of the partners. Klevansky V. Futures contracts: trading mechanism. Economics and Life, 1994, No. 27, p.7.

The subject of a futures transaction is a futures contract - a document defining the rights and obligations to receive or transfer property (including money, currency values ​​and securities) or information, indicating the procedure for such receipt or transfer. However, it is not a security

In futures transactions, the parties retain complete freedom only in relation to the price, and limited freedom in relation to the choice of the delivery time of the goods. All other conditions are strictly regulated and do not depend on the will of the parties involved in the transaction. In this regard, the futures exchange is sometimes called a “price market” (i.e., exchange values) in contrast to commodity markets (the totality and unity of use and exchange values), where the buyer and seller can agree on almost any terms of the contract. And the evolution from transactions with real goods to transactions with fictitious ones is compared with the progress from the circulation of money with real value to paper money circulation.

Some of the benefits that futures contracts offer include:

• 1) improvement of planning;
• 2) benefit;
• 3) reliability;
• 4) confidentiality;
• 5) speed;
• 6) flexibility;
• 7) liquidity;

possibility of arbitration.

1. Improved planning.

Let's look at the example of a country producing a product for export. Let's say cocoa. How will she plan her sales strategy? She can:

• a) find a buyer every month or every quarter when the product is ready;
• b) sell the entire quantity of the product to the first buyer who is announced at the price he offers;
• c) turn to the “futures” markets, using the fixed price mechanism provided by the exchange, and sell your product at the most convenient time to the best buyer.

The simplicity and attractiveness of futures contracts also lies in the fact that the cocoa producer, entering into such trading and protecting himself from the risk of causing losses on his product, allows the chocolate producer to purchase this cocoa, with delivery in the future and, thus, insure himself against interruptions in the supply of raw materials.

2. Benefit.

Any trading operation requires trading partners. But it is not always easy to find the right buyer and seller at the right time.

"Futures" markets allow you to avoid this unpleasant situation and make purchases and sales without a specifically named partner. Moreover, "futures" markets allow you to receive or pay the best price at the moment. With a futures contract, both the seller and the buyer have time to buy or sell a commodity in the future for the best benefit for themselves, without committing themselves to a specific partner.

3. Reliability.

Most exchanges have clearing houses through which all settlement transactions are carried out by sellers and buyers. This is a very important point, although the exchange is not a direct participant in the trading operation, it records and confirms every purchase and sale.

When a purchase or sale of a commodity is carried out on an exchange, the clearing house has appropriate security for this transaction from the seller and buyer. A contract implemented through a clearing house is in many ways safer than a contract with any specific partner, including government agencies.

4. Confidentiality.

Another important feature of "futures" markets is anonymity, if desired by the seller or buyer.

For many of the largest manufacturers and buyers, whose sales and purchases have a powerful influence on the global market, the ability to sell or buy a product confidentially is very important. In such cases, exchange contracts are irreplaceable.

5. Speed.

Most exchanges, especially those dealing in consumer goods, can allow contracts and goods to be quickly traded without changing prices. Thanks to this, trading is completed very quickly.

How does this happen? For example, someone wants to buy 10,000 tons of sugar. He can do this by buying 200 futures contracts at 50t per contract. Such a transaction can be completed in a few minutes. Further, all 200 contracts are guaranteed, and now the buyer has time to negotiate for more favorable terms.

6. Flexibility.

Futures contracts have enormous potential; they can be used to carry out countless options for transactions. After all, both the seller and the buyer have the opportunity to both deliver (accept) the real product and resell the exchange contract before the delivery date, which opens up prospects for a wide and varied variety.

7. Liquidity.

Generally speaking, "futures" markets have enormous potential for a variety of transactions related to the rapid "flow" of capital and commodities, that is, liquidity. One of the liquidity indicators is the total trading volume on exchanges. The trading volume on futures exchanges in commodities alone exceeds 2.5 trillion. Doll.

8. Possibility of arbitrage operations.

Thanks to the flexibility of the market and the precisely defined standards of these contracts, vast opportunities open up. They allow producers, buyers, and stockbrokers to conduct business with the necessary flexibility of operations and maneuverability of company policies in changing market conditions. Alekseev Yu.I. Stocks and bods market. Moscow, 1992, pp.-128-130

To maximize the speed of concluding forward transactions, facilitating the liquidation of contracts and simplifying settlements on them, there are fully standardized forms of futures contracts. Each futures contract contains the quantity of a commodity established by the rules of the exchange

When entering into a futures contract, only two basic terms are agreed upon: price and position (delivery time). All other conditions are standard and determined by exchange rules (except for contracts for non-ferrous metals, where the quantity of goods is also indicated - most often 100 tons).

The delivery time for a futures contract is determined by determining the duration of the position. All futures contracts, unlike contracts for real goods, must be immediately registered with the clearing house located at each exchange. Once a futures contract is registered, the members of the exchange - the seller and the buyer - no longer act as signatories to each other. They deal only with the clearing house of the exchange. Each party can unilaterally liquidate the futures contract at any time by entering into an offset transaction for the same quantity of the commodity. Liquidation of a futures contract involves paying or receiving from the clearinghouse the difference between the price of the contract on the day it was entered into and the current price.

After concluding a futures contract and registering it with the clearing house, the seller and buyer interact only with the clearing house. Moreover, each of them has the right, before the delivery date on any day, to liquidate this contract unilaterally by concluding an offset transaction. The goods are paid for at their market price at the time of liquidation of the transaction. If the seller intends to deliver actual goods, then he is obliged no later than 5-7 days before the moment of delivery to notify the clearinghouse about this by sending it a notice called “notice” in the USA, “tender” in the UK. The clearing house notifies the buyer, who (if he so desires) receives a warrant for the goods. The latter is paid by check, draft or express transfer.

The desire of the seller and buyer to make a profit determines the tactics of behavior and the nature of the actions of the participants in the exchange game. The seller makes every effort to reduce the contract price by the liquidation date. To do this, he throws out a large number of contracts for sale, which exceeds the existing demand and thereby drives down prices. Sellers who play short are called “bears” in stock exchange terminology (bear - bear; speculator playing short; to bear the market - play short in the market).

A futures contract cannot simply be cancelled, or, in exchange terminology, liquidated. If it is concluded, it can be liquidated either by concluding an opposite transaction with an equal quantity of goods, or by delivering the stipulated goods within the period stipulated by the contract. In the vast majority of cases, compensation takes place and only 1-3% of contracts involve the delivery of physical goods. Delivery of commodities on futures exchanges is allowed during certain months, called positions. If the futures contract has not been liquidated before its expiration by entering into an offset contract, then the seller can deliver the actual commodity and the buyer can accept it under the terms determined by the rules of that exchange. In this case, the seller must, no later than 5 exchange days before the onset of the forward position, send through a broker to the exchange clearing house a notice (called “notice” in the USA, “tender” in England) about his desire to sell the real goods. The next day, the Clearing House selects the buyer who bought the contract first and sends him a delivery notice through his broker, while at the same time informing the seller's broker who the goods are intended for. The buyer who wishes to accept the actual goods under the contract receives a warehouse receipt against a check issued in favor of the seller. A limited number of futures transactions (less than 2%) are completed with delivery of the actual commodity. Galanova V., Securities market. - M.: Finance and Statistics, 1998.-P.22-23

One of the goals pursued by transaction participants when concluding transactions on the stock exchange is insurance against possible price changes (hedging).

Such transactions are carried out both with real goods and with futures contracts, but in speculative transactions with futures contracts no direct settlements are made between the seller and the buyer. As already noted, for each of them the opposite party to the transaction is the clearing house of the exchange. It pays the winning party and accordingly receives from the losing party the difference between the value of the contract on the day it was concluded and the value of the contract at the time of execution. A futures transaction can be liquidated (not necessarily at the end of the contract, but at any time) by paying the difference between the selling price of the contract and the current price at the time of its liquidation. This is called the repurchase of previously sold or sale of previously purchased contracts.. Chaldaev K.M., risks in the securities market, Financial Business magazine, No. 1, 1998, p. 60-62 Speculators who play on the futures exchange when prices are rising are called “bulls”, and speculators who play when prices are falling are called “bears”.

Futures transactions are usually used for hedging insurance against possible losses in the event of changes in market prices when concluding transactions for real goods. Hedging is also used by firms that buy or sell goods for a period of time on a real commodity exchange or off an exchange. Hedging operations consist in the fact that a company, selling a real commodity on or off an exchange for delivery in the future, taking into account the price level existing at the time of the transaction, simultaneously performs the opposite operation on the derivatives exchange, that is, buys futures contracts for the same period and for the same quantity of goods. A firm that buys a physical commodity for delivery in the future simultaneously sells futures contracts on the exchange. After delivery or, accordingly, acceptance of the goods in a transaction with real goods, the sale or redemption of futures contracts is carried out. Thus, futures transactions insure transactions for the purchase of a real commodity against possible losses due to changes in market prices for this commodity. The principle of insurance here is based on the fact that if in a transaction one party loses as a seller of a real product, then it wins as a buyer of futures for the same amount of goods, and vice versa. Therefore, the buyer of a real product hedges by selling, and the seller of a real product hedges by buying.

For example, a reseller (intermediary, dealer, agent) buys large quantities of seasonal goods (grain, cocoa beans, rubber, etc.) in a certain, usually relatively short period of time in order to then ensure full and timely delivery of goods according to the orders of his consumers. Without resorting to hedging, he may incur losses in the event of a subsequent possible decrease in prices for his goods in stock. To avoid this or reduce the risk to a minimum, he, simultaneously with the purchase of real goods (it makes no difference on the exchange or directly in producing countries), performs hedging by selling, that is, he enters into a deal on the exchange for the sale of futures contracts providing for the supply of the same amount of goods. When a merchant resells his goods to a consumer, say, at a lower price than he bought, he suffers a loss on the transaction on the actual goods. But he simultaneously buys back previously sold futures contracts at a lower price, resulting in a profit. Direct consumers of exchange-traded goods (cocoa beans, rubber, etc.) often resort to hedging by sale in cases where they buy these goods for a period.

A purchase hedge ("long" hedge) is the purchase of futures contracts to hedge the price of selling an equal quantity of an actual commodity that the trader does not own for future delivery. The purpose of this operation is to avoid any possible losses that may arise as a result of an increase in the price of an item that has already been sold at a fixed price, but has not yet been purchased (“not covered”). Gerchikova I. "International Commodity Exchanges" - Economic Issues - 1991 - N7. S.-18

A contract in which the seller agrees to deliver and the buyer to pay for and receive a specified standard underlying asset at a future date at a price determined at the time the transaction is entered into.

Typically, futures are traded on specialized exchanges. The underlying assets are standardized. Delivery dates are predetermined. The place of delivery - a depository for securities or a warehouse for goods - is also specified in advance in the contract specification. The details of each contract traded on an exchange are written down in a special document called a contract specification.

Among exchange-traded futures contracts, it is customary to distinguish the following categories based on the assets for which they are concluded: financial, currency, index, precious metals, non-ferrous metals, energy, agricultural, food.

According to the method of mutual settlements, futures are divided into deliverable - when the contract requires physical delivery of the underlying asset and payment in full, and settlement - when at the end of the contract the parties to the transaction mutually settle and the difference in price is paid.

Buying a future is called opening a long position, selling is called opening a short position. Due to the fact that contracts are standardized, purchases and sales within the same exchange cover each other. So, if an investor bought five Brent oil futures contracts and subsequently sold three, his total account would be two long positions. As a result, he committed himself to supplying only two standard lots of oil. If subsequently, before the expiration of the contract, that is, before delivery, he sells two contracts, then he will not deliver oil at all. In reality, this is what happens: only a small percentage of transactions reach actual delivery. In this case, the investor’s income or loss is calculated by the exchange during the clearing process by the exchange’s clearing house.

Opening a position on an exchange requires an initial deposit called deposit margin, or collateral. At the end of each day, the mutual obligations are recalculated at the most representative price, usually the closing price of the exchange. The resulting difference between the opening price of positions and the closing price is either credited to the investor’s account or written off. When available funds after recalculation are not enough to maintain the required depositary margin for each open position, a variation margin is formed - the amount that the investor must deposit into the account of the exchange clearing house before the start of the next trading session. At the beginning of the trading day, incoming open positions are taken into account at the closing price of the previous session, since the difference has already been settled.

Such a margin trading system with an initial relatively small deposit, daily price recalculation and write-off or crediting of the difference makes trading futures contracts attractive to speculators. At the same time, futures trading is one of the riskiest activities in the investment market.

On the other hand, the futures market allows suppliers and buyers to insure (hedge) their risks associated with future price changes. And thanks to the system of marginal contributions, participants can divert funds for insurance within an acceptable minimum.

The subject of a futures transaction is a futures contract - a document defining the rights and obligations to receive or transfer property (including money, currency values ​​and securities) or information, indicating the procedure for such receipt or transfer. However, it is not a security. A futures contract cannot simply be canceled or, in exchange terminology, liquidated. If it is concluded, it can be liquidated either by concluding an opposite transaction with an equal quantity of goods, or by delivering the stipulated goods within the period stipulated by the contract.

The rules for trading under futures contracts open up certain opportunities: the seller retains the right to choose - to deliver the product or buy out the futures contract before the delivery date of the goods; buyer - accept the goods or resell the fixed-term contract before the delivery date.

The main features of futures trading are:

• · fictitious nature of transactions, in which purchase and sale is completed, but the exchange of goods is almost completely absent. The purpose of transactions is not the use value, but the exchange value of the product;
• · predominantly indirect connection with the market for real goods (through hedging, and not through the supply of goods);
• · complete unification of the use value of a product, the representative of which is potentially an exchange contract, directly equated to money and exchanged for it at any time (in the case of delivery under a futures contract, the seller has the right to supply goods of any quality and origin within the framework established by the rules of the exchange);
• · complete unification of conditions regarding the quantity of goods allowed for delivery, place and delivery time;
• · impersonality of transactions and the replaceability of counterparties for them, since they are concluded not between a specific seller and buyer, but between them or even between their brokers and the clearing house - a special organization at the exchange, which takes on the role of a guarantor of the fulfillment of the obligations of the parties when buying or selling them exchange contracts. At the same time, the exchange itself does not act as one of the parties to the contract or on the side of one of the partners.

In futures transactions, the parties retain complete freedom only in relation to the price, and limited freedom in relation to the choice of the delivery time of the goods. All other conditions are strictly regulated and do not depend on the will of the parties involved in the transaction. In this regard, the futures exchange is sometimes called a “price market” (i.e., exchange values) in contrast to commodity markets (the totality and unity of use and exchange values), where the buyer and seller can agree on almost any terms of the contract. And the evolution from transactions with real goods to transactions with fictitious ones is compared with the progress from the circulation of money with real value to paper money circulation.

Among the advantages that futures contracts represent are: exchange-traded forward futures

• · improved planning;
• · benefit;
• · reliability;
• · confidentiality;
• · speed;
• · flexibility;
• · liquidity;
• · possibility of arbitration.

Futures transactions are usually used for hedging insurance against possible losses in the event of changes in market prices when concluding transactions for real goods. Hedging is also used by firms that buy or sell goods for a period of time on a real commodity exchange or off an exchange. Hedging operations consist in the fact that a company, selling a real commodity on or off an exchange for delivery in the future, taking into account the price level existing at the time of the transaction, simultaneously performs the opposite operation on the derivatives exchange, that is, buys futures contracts for the same period and for the same quantity of goods. A firm that buys a physical commodity for delivery in the future simultaneously sells futures contracts on the exchange. After delivery or, accordingly, acceptance of the goods in a transaction with real goods, the sale or redemption of futures contracts is carried out. Thus, futures transactions insure transactions for the purchase of a real commodity against possible losses due to changes in market prices for this commodity. The principle of insurance here is based on the fact that if in a transaction one party loses as a seller of a real product, then it wins as a buyer of futures for the same amount of goods, and vice versa. Therefore, the buyer of a real product hedges by selling, and the seller of a real product hedges by buying.

A purchase hedge (“long” hedge) is the purchase of futures contracts for the purpose of insuring the sale prices of an equal quantity of an actual commodity that the trader does not own for future delivery. The purpose of this operation is to avoid any possible losses that may arise as a result of an increase in prices for goods that have already been sold at a fixed price, but have not yet been purchased (“not covered”).

Futures (futures contract) is a derivative financial instrument, a standard fixed-term exchange contract for the purchase and sale of an underlying asset, upon the conclusion of which the seller and buyer agree only on the price level and delivery time. The remaining parameters of the asset (quantity, quality, packaging, labeling, etc.) are specified in advance in the specification of the exchange contract. The parties bear obligations to the exchange until the futures are executed.

A futures is an agreement to fix the conditions for the purchase or sale of a standard quantity of a certain asset at a specified date in the future, at a price set today. It is generally accepted that more than two business days pass between fixing the terms of a transaction and the execution of the transaction itself.

The term futures is derived from the English word future (future) and means that an agreement has been concluded for the supply of a certain product in the future. The futures contract must indicate its execution (expiration) date, before which you can either free yourself from your obligations by selling (if there was initially a corresponding purchase) or purchasing (in the case of an initial sale) the futures.

Futures are one of the types of derivative financial instruments. The term “derivative” means that the price of this instrument will be correlated with the price of a specific commodity (oil, gold, wheat, cotton, etc.), which will underlie the futures contract and be the underlying one.

There are two parties involved in a futures transaction - the seller and the buyer. The buyer of a futures contract accepts the obligation to buy the asset at a specified time, and the seller of the future assumes an obligation to sell the asset at a specified time.

Both obligations relate to a standard quantity of a specific commodity, at a specific date in the future, at a price established at the time the futures are entered into.

Futures are bought and sold on an exchange in standardized units of a commodity or asset, and these units are called contracts or lots. For example, one futures contract for copper represents a shipment of this metal of 25 tons, and one contract for European currency means the purchase or sale of 100 thousand euros. If you need to buy 50 tons of copper, then two copper futures are concluded. At the same time, you cannot purchase 30 or 40 tons of copper.

Futures contracts extend rights to an underlying asset of a certain quality (the amount of impurities in the metal or the moisture content of grain).

Delivery of futures contracts takes place on a specified time(s), called the delivery day(s). It is on this day that money is exchanged for goods.

The futures price is fixed at the time the transaction is concluded and does not change for the buyer and seller until the day the contract is executed, regardless of what the prices for the underlying asset are.

A futures contract is concluded only on an exchange. It is she who develops its conditions, which are standard for each specific type of asset. In this regard, futures are highly liquid, and there is a wide secondary market for them.

The underlying asset can be:
- a certain number of shares (stock futures);
- stock indices (index futures);
- currency (currency futures);
- goods traded on exchanges, for example, oil (commodity futures);
- interest rates (interest futures).

Futures contracts have 3 general purposes:
- determine the price of the tool;
- insurance against financial risks, that is, hedging (mainly carried out by real suppliers or consumers of the instrument);
- speculation for financial gain (done by experienced traders and investors).

The history of futures.

Futures contracts first appeared between farmers and buyers of their products. Immediately, before the start of the agricultural season, farmers entered into contracts with buyers and agreed on product prices in advance. This allowed them to plan a budget for the entire season. This did not always bring great profit to the farmer, but it also helped prevent failure.
The 1970s saw the introduction of futures contracts for financial instruments, stock indices, and mortgage-backed securities.
Since 1978, trading in fuel oil futures began.
Since the early 1980s, for oil and other petroleum products.
Today, futures have become very popular and these contracts for various products are traded on all world markets.

Futures market participants.

Many agents in the real sector of the economy resort to futures transactions. For example, farmers or equipment manufacturers pursue the goal of reducing risk, while others, on the contrary, take on greater risks in search of high profits. Therefore, participants in futures markets are divided into two main categories: hedgers and speculators. The hedger wants to reduce risk, and the speculator takes risks, wanting to make large profits. Thus, speculators provide market liquidity with their operations, allowing hedgers to insure their transactions.

TYPES OF FUTURES

There are two types of futures contracts.
A deliverable futures contract involves a transaction with a real commodity, which must be delivered to the buyer in a specified quantity within a certain period, at a price fixed on the last trading date. Such activities are regulated by the exchange, and failure to fulfill obligations by the seller (lack of goods within the specified period) entails penalties.

They are traded mainly by industrial enterprises, for which the main priority is not speculation, but the purchase and sale of goods at competitive prices. If deliverable futures contracts are purchased by companies, this is done in order to buy the necessary raw materials at favorable prices today, receive these raw materials after some time, and thereby protect themselves from rising prices.

A settlement (non-deliverable) futures assumes that only monetary settlements are made between the participants in the amount of the difference between the contract price and the actual price of the asset on the date of execution of the contract without physical delivery of the underlying asset. Typically used for hedging risks of changes in the price of the underlying asset or for speculative purposes.

Futures Specification

Before a futures contract is put into circulation, the exchange determines the trading conditions for it, which are called “specifications”. A futures specification is a document approved by the exchange, which sets out the basic terms of the futures contract. This document specifies the following parameters:
- name of the contract;
- code name (abbreviation);
- type of contract (delivery/settlement);
- contract size - the amount of the underlying asset per contract;
- margin (collateral required for futures trading);
- place of delivery (if the futures is deliverable);
- terms of the contract;
- the date when the parties are obliged to fulfill their obligations;
- minimal price change;
- cost of the minimum step.

Futures price

The main reason why many market participants enter into futures contracts is the certainty of the price that is fixed in it. This price remains unchanged under any circumstances.

The futures price is the current market price of a futures contract with a specified expiration date. The estimated (fair) value of a futures contract can be defined as its price at which an investor would equally benefit from purchasing the asset itself on the spot market and its subsequent storage until used, or purchasing a futures contract for this asset with a corresponding delivery date.

The difference between the current price of the underlying asset and the corresponding futures price is called the basis of the futures contract. Relative to the spot price of the underlying asset, a futures contract can be in two states.
1. The futures price is higher than the price of the underlying asset, this condition is called contango. In this case, the basis is positive; market participants do not expect the price of the underlying asset to fall. Typically, futures contracts trade in contango most of the time.
2. Futures are trading below the price of the underlying asset; this condition is called backwardation. In this state, the basis is negative; market participants expect the price of the underlying asset to fall.

Margin- this is a guarantee deposit on the client account of the exchange, frozen at the time of the transaction. It must be contributed by futures trading participants on both sides. The exchange does not use margin; it is the key to execution of the transaction by the client. At the moment when the client has paid the amounts due for the transaction or sold his futures, the margin is returned to him. The following types of margin are used: deposit, additional and variation.

Deposit (initial) margin or margin is a refundable insurance premium charged by an exchange when opening a position in a futures contract. As a rule, it is 2 - 10% of the current market value of the underlying asset.

Escrow margin is charged to both the seller and the buyer. It is, by its nature, more of an instrument that guarantees the exact performance of the contract than a payment for the asset being sold.

Currently, the deposit (initial) margin is charged not only by the exchange from trading participants, but there is also a practice of charging additional broker security from its clients (that is, the broker blocks part of the client’s funds to secure his positions in the derivatives market).

The Exchange reserves the right to increase the collateral rates. In some cases, this results in a change in the value of the contract as smaller market participants do not have enough funds to cover the increased margin requirement and begin to close their positions, which ultimately leads to a decrease (if the long position is closed) or an increase in ( if a short position is closed) prices for them.

Additional margin may be required in the event of sharp price fluctuations in the futures market, which could destabilize the guarantee system.

The price of each futures contract is constantly changing, just like any other exchange-traded instrument. As a result, the exchange clearing center faces the task of maintaining the collateral contributed by the transaction participants in an amount corresponding to the risk of open positions. The clearing center achieves this compliance by daily calculating the so-called variation margin, which is defined as the difference between the settlement price of a futures contract in the current trading session and its settlement price the day before. It is awarded to those whose position turned out to be profitable today, and is written off from the accounts of those whose forecast did not come true. With the help of this margin fund, one of the parties to the transaction makes a speculative profit even before the expiration date of the contract. The other party suffers a financial loss. And if it turns out that there are not enough free funds in his account to cover the loss, then in this case the exchange clearing center, in order to restore the required amount of the security deposit, will require additional money (issue a margin call).

Advantages of futures:
- the futures market is transparent and protected (all companies on the market associated with such transactions are controlled by the Commodity Futures Trading Commission - CFTC (Commodity Futures Trading Commission) and the National Futures Association - NFA);
- high liquidity, the most popular are futures for blue chips and the RTS index;
- small investments (to complete a transaction, you do not need to pay for the entire contract, it is enough to pay an initial margin of up to 10%);
- real prices for goods, since trading is open;
- very low broker commission;
- a more stable situation on the market (unlike Forex);
- price control 24 hours a day.

PRACTICE OF TRADING FUTURES CONTRACTS

In order to start trading futures, you need to open an account with a broker and place on it the amount necessary to trade the selected instruments. Profits will be credited to this account, and losses will be written off from it. Depending on the exchange, you must have funds in your deposit account from 2 to 10 percent of the total value of the underlying asset underlying the futures contract.

A futures contract imposes an obligation on both parties: the seller agrees to sell and the buyer agrees to buy at the price agreed upon when signing the contract and specified in it. But in reality, the delivery of goods does not occur: the parties only receive financial profits or suffer losses, depending on the movement of the price of the instrument.

Trading practice shows that the vast majority of investors' positions on futures contracts are liquidated by them during the contract's validity using offset transactions, and only 2 - 5% of contracts in world practice end with the actual delivery of the corresponding assets. Therefore, settlement - non-deliverable futures contracts (CFD - Contract For Difference) were introduced into circulation. The conclusion of such a contract means that financial settlements will be made between the buyer and seller of the futures on the expiration date of the contract, which do not involve the delivery of the asset underlying the contract.

The actual supply of goods occurs through long-established relationships that rely on the commodity market to provide a market price and to control risks.

Ticker(contract symbol). To speed up the perception of futures contracts available for trading, an international system of exchange symbols – tickers – is used. The ticker consists of:
- designation of the exchange on which the contract is traded. For example, the abbreviation “F” belongs to the largest exchange Euronext”;
- the underlying commodity underlying the futures. For example, “BRN” is Brent oil, “I” is silver, “C” is corn;
- the period of circulation of the contract on the exchange. Months are indicated in the form of Latin letters: January – letter “F”, February – “G”, March – “H”, April – “J”, May – “K”, June – “M”, July – “N”, August – “Q”, September – “U”, October – “V”, November – “X”, December – “Z”, and the year – according to the last digit.
For example, the ticker "ZWH5" indicates a futures contract traded on the Chicago Mercantile Exchange ("Z"), for wheat ("W"), expiring in March ("H") 2015 ("5").

FUTURES EXCHANGES

There are currently about 10 major international platforms for trading derivatives. Contracts for the most popular products (there are about a hundred of them) are traded through electronic systems. They allow traders from all over the world to enter into trading at minimal cost and be able to enter into contracts as quickly as traders on the floor of the exchange. In addition, electronic systems allow trading around the clock, with one hour break, five days a week.

The world's leading futures exchanges are:
1. Chicago Mercantile Exchange (CME).
2. Chicago Board of Trade (CBOT, part of the CME Group).
3. New York Mercantile Exchange (NYMEX, part of the CME Group).
4. London International Financial Futures and Options Exchange (LIFFE, part of NYSE Euronext).
5. London Metal Exchange (LME).
6. Intercontinental Exchange (ICE).
7. Eurex.
8. French International Financial Futures Exchange (MATIF).
9. Australian Stock Exchange (ASX).
10. Singapore Exchange (SGX).

The Chicago Board of Trade is the oldest of all active exchanges. It has no equal in the number and diversification of traded instruments. The largest trading volumes pass through it, and, accordingly, contracts traded on the Chicago Exchange have the greatest liquidity. The CBOT trades derivatives for the following groups of commodities: energy and energy, currencies, stock indices, interest rates, grains, metals, timber, livestock and agricultural products.

In Russia, futures contracts are currently traded on the following exchanges:
1. Moscow Exchange.
2. St. Petersburg Stock Exchange.

Other benefits that futures contracts provide include the following.

1. Improved planning. Any manufacturer plans its sales strategy in advance. He can find a buyer every month or quarter when the product is ready, or sell the entire quantity of goods to the first buyer who appears at the price he offers. But a manufacturer can turn to the futures markets, using the fixed price mechanism provided by the exchange, and sell its product at the most convenient time to the best buyer. The manufacturer of the product, by entering into such trade and protecting itself from the risk of incurring losses on its products, gives the buyer the opportunity to purchase these products with delivery in the future and, thus, insure themselves against interruptions in the supply of raw materials.

2. Benefit. Any trading operation requires trading partners. But it is not always easy to find the right buyer and seller at the right time. Futures markets allow you to avoid this unpleasant situation and make purchases and sales without a specifically named partner. Moreover, in futures markets, you can get or pay the best price at the moment. With a futures contract, both the seller and the buyer have time to buy or sell the commodity in the future for the best benefit, without committing themselves to a specific partner.

3. Reliability. Most exchanges have clearing houses through which all settlement transactions are carried out by sellers and buyers. This is a very important point, although the exchange is not a direct participant in the trading operation, it records and confirms every purchase and sale. When the purchase and sale of a commodity is carried out on the exchange, the clearing house has appropriate security for this transaction from the seller and buyer. A contract implemented through a clearinghouse is in many ways safer than a contract with any specific partner, including government agencies.

4. Confidentiality. Another important feature of futures markets is anonymity, if desired by the seller or buyer. For many of the largest manufacturers and buyers, whose sales and purchases have a powerful influence on the global market, the ability to sell or buy a product confidentially is very important. In such cases, exchange contracts are irreplaceable.

5. Speed. Most exchanges, especially those dealing in consumer goods, can afford to quickly sell contracts and goods without changing prices. Thanks to this, trading is completed very quickly. For example, someone wants to buy 10,000 tons of sugar. He can do this by buying 200 futures contracts at 50 tons per contract. Such a transaction can be completed in a few minutes. Further, all 200 contracts are guaranteed, and now the buyer has time to negotiate more favorable terms.

6. Flexibility. Futures contracts have enormous potential to carry out countless options for transactions with their help. After all, both the seller and the buyer have the opportunity to both deliver (accept) the real product and resell the exchange contract before the delivery date, which opens up prospects for a wide and varied variety.

7. Liquidity. Futures markets have enormous potential for a variety of transactions involving the rapid flow of capital and commodities, i.e. liquidity.

8. Possibility of arbitrage operations. Thanks to the flexibility of the market and the precisely defined standards of these contracts, vast opportunities arise. They allow producers, buyers, and exchange intermediaries to conduct business with the necessary flexibility of operations and maneuverability of company policies in changing market conditions.

As noted, a futures contract is an agreement between a seller and a buyer to deliver a specified commodity at an agreed date in the future. Every futures contract has two parties: the buyer, or the party with a long position (long), and the seller, or the party with a short position (short).

During the term of the contract, its price depends on the state of the market (natural, economic, political and other factors) for the relevant product. Buyers benefit from price increases because they can get the product at a lower price than the current price. Sellers benefit from falling prices because they entered into a contract at a price higher than the current price.

Each futures contract has a standard, exchange-determined quantity of the commodity, called a contract unit. The establishment of trade units in a particular contract is based on trade practice. For example, for sugar - 50 tons, rubber, copper, lead and zinc - 25 tons, coffee - 5 tons, etc. The deviation of the actual weight from the contract weight should not exceed 3%.

The delivery time for a futures contract is determined by determining the duration of the position. For example, a standard contract of the London and other exchanges for rubber can be concluded for each individual subsequent month - a monthly position; for sugar, cocoa, copper, zinc, tin, lead - for each subsequent three-month position.

The methods of quoting prices for various goods are determined by customs and the physical characteristics of the goods. Thus, gold and platinum are quoted in dollars and cents per ounce. Silver is also quoted per ounce, but since it is a cheaper metal, its quotation contains additional symbols: silver is quoted in dollars, cents and tenths of cents per ounce. Grains are quoted in dollars, cents and quarters per bushel. Many commodities are quoted in tenths and hundredths of cents per pound (copper, aluminum, sugar, etc.).

Based on the contract unit and unit price, you can calculate the contract value using the formula

P – contract unit;
C – price per unit.

The terms of some futures contracts on US exchanges are given in table. 6.1.

As can be seen from the table, futures contracts exist for many commodities and financial instruments. Some of them are quite popular, while others are not. The main conditions for the success of a futures contract:

A large volume of supply and demand for the commodity that is the basis of the futures contract;
homogeneity and interchangeability of the goods underlying the contract;
free pricing on the market for this product, without state control or monopoly;
changes in product prices;
commercial interest of the contract for real market participants;
the difference between a futures contract and other existing contracts.

A distinctive feature of futures contracts is the presence of two ways of their settlement (liquidation): by delivery of goods or by concluding a reverse (offset) transaction.

Currently, about 2% of all futures transactions result in actual delivery of the commodity. The place of delivery of goods under a futures contract is usually a storage facility of the appropriate type (for example, an elevator), with which the exchange has concluded supply agreements. The system of exchange warehouses represents separate legal entities completely independent of the exchange, registered on the exchange and included in the list of official exchange warehouses. Such warehouses store goods received as fulfillment of obligations under futures contracts in strict accordance with the conditions established by the exchange.

A precise description of the delivery procedure is given in the rules of each exchange, but it is possible to highlight points that are common to all. The delivery period usually begins two to three weeks before the contract expires. It is during this period that a decision on the delivery of goods must be made. The seller must determine when during the delivery period he will prepare a notice (notice) of his intention to make delivery and notify the exchange clearing house, which distributes the notes to holders of long positions. After the buyer receives the notice, actual delivery takes place one to two days later.

There are translatable and non-translatable delivery notices. When the long position holder receives a transferable delivery note - even if the contract is still trading, he must accept it. If he does not want to accept the goods, then he should close the long position, that is, sell the futures contract and transfer the note to the new buyer. At the same time, a limited time is given for translation of the notice, since the goods are already in the warehouse and ready for delivery. However, if the notice remains in the hands of the buyer beyond the specified time, then it is considered accepted and the buyer must accept delivery.

If the buyer receives a non-transferable note, he can still sell the contract before the last day of trading. In this case, the notice is not immediately transferred to the new buyer. The former buyer must hold it until the next day and pay one day's storage costs. Since he sold his contract, he must issue a new note and deliver it to the clearinghouse after the close of trading on the day of the transaction. This procedure is called re-notification. Thus, the buyer has two transactions in his account: one for a futures contract, and the other for a real commodity. Most futures exchanges use a non-translatable note.

The overwhelming number of futures contracts are liquidated by performing a reverse transaction, since for sellers the terms of futures contracts are not always acceptable for actual delivery, and for buyers, delivery under exchange-traded contracts is often associated with inconvenience and additional costs and difficulties. To eliminate obligations under the contract, the transaction participant gives the broker an order to complete a reverse transaction:

The holder of a long position gives an order to sell the same contract;
the holder of a short position gives an order to buy the contract.

The difference in the value of the contract at the time of its conclusion and at the time of liquidation is either the profit of the participant, which will go to his account, or the loss, which will be debited from his account. The calculation of profits and losses is carried out as follows. For the holder of a long position, profit occurs when prices rise; on the contrary, when prices fall, the holder of a short position receives profit. The difference in the contract value for long and short positions is defined as the difference between the transaction execution price and the current quote on the derivatives market, multiplied by the quantity of the commodity:

G = (P 1 -P 0) x C,

P 0 – transaction execution price;
P 1 – current quote on the derivatives market;
C – quantity of goods.

Both the profit of one participant and the loss of another can be quite significant. US futures trading regulations require each participant in the futures market to sign a risk statement that alerts the customer to the risk of futures transactions.

A transaction for the sale or purchase of a futures contract by one of the parties must be registered by the clearing house of the exchange, which is the third party to transactions for their participants - the buyer for all sellers and the seller for all buyers. Thus, buyers and sellers of futures contracts assume financial obligations not to each other, but to the clearing house.

In futures markets, in addition to profiting from price changes, you can benefit from the spread, i.e. the difference in prices when two different futures contracts for the same commodity are simultaneously bought and sold. When starting such an operation, the bidder takes into account more the ratio of prices for two contracts than their absolute levels. He buys a contract judged to be cheap, while he sells a contract judged to be expensive. If price movements in the market go in the expected direction, then the exchange player makes a profit from changes in the ratio of contract prices.

There are three main types of price difference transactions: intramarket, intermarket and intercommodity.

An intramarket transaction is the simultaneous purchase of a futures contract of a given type for one term and the sale of a futures contract of a different maturity for the same commodity on the same exchange.

An intermarket transaction is the simultaneous purchase and sale of a futures contract for the same commodity for the same period on different exchanges.

An intercommodity trade is the simultaneous purchase and sale of a futures contract of the same duration in different but interrelated futures markets.

A special type of inter-commodity transactions is based on the difference in prices for raw materials and their processed products. The most common are the spread on soybeans and their products (crash spread), and the spread on the oil and petroleum products market (crack spread).

Futures contracts are also used in a very important exchange transaction carried out on the exchange - hedging.

We will consider the hedging mechanism in detail in the next chapter.