Example of futures trading for all instruments

Private clients can trade on the Moscow Exchange through an accredited broker (Brokerage Firm). A special feature is that the investor is given the opportunity to work remotely using a trading terminal and other online trading systems.
An example of trading futures contracts through the QUIK terminal

At the very beginning, we will outline the main things regarding futures (how to look for them, how to read them, etc.).

So, a brief theory on futures - futures specification

Contract name

The name of the contract consists of several parameters

1) An underlying asset is a bet on what will happen in the future with some underlying asset. The underlying asset can be an Index, a Share (settled futures contracts for shares), Commodities, Currency, etc. - this is what the futures are traded on.

2) Type contract a (delivery/settlement) – by type, it can be delivery or settlement. As traders, we are interested in settled futures (final settlement in money). Deliverable futures (they are also available there), as a rule, are contracts for shares.

3) Place of delivery of settlement futures– this is your trading account (trading terminal), everything will fall there.

4) Contract size– each futures contains a certain amount of the underlying asset per contract.

5) Size and price of one tick (minimum price change) – each instrument has its own minimum price value. Let’s say that a futures contract on the RTS index has one tick (one division) equal to 2 cents; at the exchange rate of the Central Bank of the Russian Federation as of December 5, 2014, a dollar costs 52.69 rubles, rounded to 52 rubles. and we get 2 cents = 104 kopecks. Accordingly, if you opened a position and the market moved 1000 points from that moment, then you earned approximately 1040 rubles. Not a bad result for those who are going to trade intraday. The only thing, of course, is to be able to predict this movement by analyzing the market.

6) GO ( guarantee or margin) – the deposit (tenth) that must be paid in order to trade futures, what you must deposit, i.e. reserve a certain amount in order to take advantage of this contract.

But the next type of margin is called Variation Margin - this is what you earn when you hold a futures (a position on a futures contract), and depending on whether the market goes in your direction or not, you earn or lose. This variation margin can be either positive or negative. Of course, positive variation margin is much better.

7) Contract expiration date(expiration date) – the date when both parties are obliged to fulfill their obligations. Those. there is a seller and there is a buyer, each of them, depending on what role he plays, must either buy the contract - if it is a short position, or sell - if it is a long position.

Futures trading

Decoding the contract

Let's figure it out regarding decryption.

Explanation of the futures contract for the RTS Index (example)

Name of the underlying asset – RTS Index
Underlying asset code (field “C”) – RI

Encoding month of execution
The year of futures execution is coded as a single digit from 0 to 9

The contract execution date is the 15th day of the month of execution (or the working day closest to this date)

F – January
G – February
H – March
J – April
K – May
M – June
N – July
Q – August
U – September
V – October
X – November
Z – December

Example

If you open QUIK and find the March RIH4 futures contract, what does it mean?

RIH4

Letters (RI) - mean Russian index.
The letter (H) means month, in this case March.
The number (4) means the year, in this case 2014.

After RIH4 (March contract) finishes trading, the (June contract) will come and it will be called RIM4, the next one will be called RIU4 (September contract), the next RIZ4 (December contract), then comes again (March contract) RIH5 only for 2015 year, etc.

As for, for example, oil futures contracts, they are traded monthly, because the instrument is volatile. Oil is traded monthly, for example March 2014 BRH4, etc.

The contract execution date is usually the middle of the designated month, the 15th day, or the closest working day to it, i.e. if the 15th falls on Saturday, then expiration occurs on the 14th, if on Sunday, then on the 16th. In this regard, many try to switch to another month in advance, because they are afraid that they will suddenly have to hold the position, and in order not to fall under this expiration, under forced closure, they prefer to switch to another month, for example March or some other. After March, respectively, comes BRJ4 (April contract), then BRK4 (May contract), BRM4, etc.

Types of futures contracts

1) Futures contracts on INDICES

Code – RTS mm.yy. MIX
Contract name – RTS Index, MICEX Index, etc.
Type – Calculated, Calculated
Underlying asset – RTS index value, MICEX index value
The exchange fee for a scalping transaction is 1 rub., 1.5 rubles, different for each broker.

The most, most liquid and at the same time dangerous instrument that is available on the derivatives market is the futures on the RTS index. The RTS Index is the 50 largest issuers of the Russian market for which a futures contract was made. Those who believe that the market will rise buy this futures contract (open a long position), those who believe that the index will fall sell and open a short position.

The same is true for the MICEX index, however, it is not so liquid, so it is better to consider such an instrument as a futures contract for the RTS index. There are also other exotic indices, such as BRIC (Brazil, Russia, India, China), etc.

2) Futures contract on SHARES

GAZPR – Gazprom
LK – Lukoil
ROSN – Rosneft
SBER – Sberbank (JSC)
SBPR – Sberbank (p)
GMKR – Norilsk Nickel
TATN – Tatneft
TRNF – Transneft
MTSI – MTS
HYDR – RusHydro
SNGR – Surgutneftegaz
CHMF – Severstal
NOTK – Novatek

Many novice traders are recommended to practice on them, because stock futures are very tied to the stock chart, therefore, if you analyze these stocks from the point of view of technical or fundamental analysis, you will then be able to roughly understand what will happen with futures on these stock.

It is very difficult to analyze the futures itself, because it is short and the chart for it will be very broken and truncated.

Stock futures are, as a rule, blue chips and some of the top of the second tier.

3) Futures contract for CURRENCY

Si -12.14 – American Dollar
ED -12.14 – Euro Dollar
GBPU -12.14 – British pound
Eu -12.14 – Euro
AUDU -12.14 – Australian Dollar - American Dollar

In Russia, traders mainly trade dollar futures against the ruble, euro dollar futures, British pound against the dollar, euro against the ruble, Australian dollar against the American dollar.

In the CURRENCY futures market, the leverage is approximately 1:20. For example (based on the ruble to dollar exchange rate for 2012, 1 $ = 30 rubles), let’s take a futures contract dollar against ruble (dollar/ruble), the guarantee on it is 1,500 rubles, it is traded in a lot of 1,000 dollars, i.e. . 30,000 rub. divide by 1500, the leverage will be 1:20, approximately the same with the Euro.

4) Futures contract for COMMODITIES

Br – Oil
GD – Gold
Sv – Silver
PT – Platinum
PD – Palladium
GR – Wheat
SA – Sugar (Oct, March)
SO – Soybeans
CN – Corn

Many people like to trade commodity futures because they are more understandable to them (what is gold, what is sugar) in contrast to abstract futures on stocks or indexes.

It is clear that let’s say in the summer, closer to autumn, there is no wheat harvest, which means that it will rise in price, which means it makes sense to buy a futures contract for wheat. Or oil reports have come out, oil reserves have decreased, oil prices will rise, which means you need to open a long position in oil futures, etc. Those. goods are something that can be mentally imagined, understood, and drawn conclusions.

Futures trading

LET'S GO TO PRACTICE

(QUIK terminal)

QUIK settings for futures trading

Setting up the necessary tables for work

As when working with stocks, there is a “Current table of parameters”, which we will need. We need the creation of the “Current Table of Parameters” and its settings so that later it would be convenient to use it to pull out the glass for the desired futures contract for trading.

Open the section (Tables – Current table – FORTS: Futures) – here we look for familiar names and add Row Headings to the list.

Row headers

BRZ4 – BREND oil
CHZ4 – (CHMF - Severstal)
CUZ4 – copper
EDZ4 – euro/dollar (euro against the dollar, i.e. play in favor of the euro)
EuZ4 – euro/ruble
GDZ4 – gold
GMZ4 – Norilsk Nickel
GZZ4 – Gazprom
LKZ4 – LUOIL
RIZ4 – RTS index futures
SiZ4 – dollar futures
VBZ4 – futures on VTB shares (they have a very low guarantee and they are quite calm - the best futures for beginners)

You can also add those tools that suit you.

For example

DSH4 – diesel fuel – if listed
CNH4 – corn – if listed
CTH4 – cotton – if listed
PDH4 – palladium – if listed

Column Headings

% change.closed
Base asset
Paper
GO pok.
GO cont.
Date of issue

% change.closed – change in closing price, when you open the terminal, the first thing that interests you is what happened to the market, whether it rose or fell, i.e. pay attention to the leaders of growth and decline, how the price has changed in percentage).

Base asset – the underlying asset, for those who are not well versed in tickers (abbreviated for futures contracts).

Paper – name of the paper.

GO pok. and GO cont. – GO of the buyer and GO of the seller, they can sometimes differ in one direction or another. Of course, you are interested in how much money you should have.

Date of issue – contract execution date

Until maturity
Lot
Price step
Closed price
Price last

Until maturity – how many days are left until maturity.

Lot – how much of the underlying asset is contained in one futures contract.

Price step – the minimum price step, the number of points by which the price will move (it is separate for each futures contract).

Closing price – closing price.

Price last – the price of the last transaction.

Click YES to create the table.

Selected options

Open limit pos.
Current clean position
Variational Margin
Accumulated income

Open position limit – limit of open positions, here we see the limit on client accounts, how much money we currently have.

Current clean position – current net position, this is the amount of collateral that we are currently using, i.e. Let’s say you bought 10 futures contracts on the RTS index and you have somewhere around 100,000 in the form of your current net position.

Variats. Margin – variation margin, when you bought a futures or opened a short position on it, for example, the variation margin begins to be calculated immediately, you close this position, and you record this variation margin in your account, i.e. if you traded in a plus, you can immediately fix it, but if it goes into a minus, you can again sell the futures and then your minus will stop growing.

Accumulated income - accumulated income, trading time on the Moscow Exchange (you can see - Duration of the trading session on the futures and options market from 10:00-18:45, 19:00-23:50 Moscow time). Everything that was traded before lunch, until 13:55, is initially counted in the variation margin section, and then smoothly flows after 14:00 into the accumulated income section and the variation margin begins to be counted from scratch. Those. in order to understand how much you earned by 17:00 in the evening, you need the value of the variation margin, add it to the accumulated income, and that’s how much you got, how much you earned, or lost.

Selected options

Short name
Current clean position
Variational Margin

Short name– position size, i.e. number of futures contracts.

Current clean position – current net position

Variational Margin – how much we have been earning since the last break.

Click YES to create a table.

As in the first table, so in the second - we count money, but here in the short title section we see the position size, i.e. the number of futures contracts for a specific underlying asset. And the variation margin is how much we have been earning since the last break.

Futures trading is a speculative operation. Unlike spot trading, where an investor purchases shares by paying full price, the player does not actually purchase a futures contract. He enters into a contract for the hypothetical supply of a block of shares. At the same time, it contributes a guarantee security (GS), amounting to several percent of the cost of the package.

Simply put, this is the opportunity provided by the stock market to get money out of nothing, as well as give it away for nothing. It’s like roulette, only on the stock exchange. With an important difference, here the player, if he is sufficiently prepared, does not rely entirely on fortune, but is able to somehow foresee the development of the market and protect himself from accidental loss.

Futures are put into circulation on the market in blocks of one hundred shares for three months.. Trading in them is carried out in parallel with trading in the shares themselves. Shares are sold on the spot (cash) market, and futures are sold on the FORTS derivatives market. The price of the share itself in these markets is approximately the same.

Due to the fact that exchanges have become publicly available, many are interested in the question of how to trade futures on the stock market. First of all, the basic principle of the market. If a trader believes that the shares of a certain company will rise in the near future, he purchases blocks; if the share price falls, he sells blocks. This is the key to success, otherwise it’s failure.

Futures trading examples

It is advisable to demonstrate the mechanism of profit generation using an example.

Presumably one share costs 150 rubles. A package of one hundred shares is correspondingly 15,000 rubles. If the GO is set at 15% on the FORTS derivatives market, the player is required to pay 2,250 rubles for one block of Gazprom shares.

A certain trader is convinced that the shares of the named company will rise in the near future. He purchases three futures, paying 6,750 rubles, and waits. A few days later the shares actually rose in price to 160 rubles. A package of one hundred shares accordingly increased in price to 16,000 rubles.

The trader concludes that further growth in the value of the stock is unlikely, and sells three of his shares. In accordance with the 15% GO established on the market, each package will cost 2,400 rubles, three packages, respectively, 7,200 rubles. After selling them, a profit of 450 rubles will remain on the player’s account.

In the above example, both the share price and the size of the GO on the FORS stock market were taken conditionally and cannot correspond to the true state of affairs. The purpose here was to demonstrate: how to trade futures and what is the mechanism for generating profit in such operations. Beginners should remember that speculative operations in the stock market, which include futures trading, have an increased risk.

And the current reality of trading these instruments.

What is a futures in simple words

is a contract to purchase or sell an underlying asset within a predetermined time frame and at an agreed price, which is fixed in the contract. Futures are approved on the basis of standard conditions that are formed by the exchange itself where they are traded.

For each underlying asset, all conditions (delivery time, place, method, etc.) are set separately, which helps to quickly sell the assets at a price close to the market.

Thus, secondary market participants have no problem finding a buyer or seller.

To avoid the refusal of the buyer or seller to fulfill obligations under the contract, a condition is established for the provision of collateral by both parties.

Now it is not the economic situation that dictates the price of futures contracts, but rather they, by shaping the future price of supply and demand, set the pace of the economy.

What is a Futures or Futures Contract?

(from the English word future - future), is a contract between a seller and a buyer providing for the delivery of a specific good, stock or service in the future at a price fixed at the time the futures is concluded. The main goal of such instruments is to reduce risks, secure profits and guarantee delivery “here and now.”

Today, almost all futures contracts are settled, i.e. without obligation to supply actual goods. More on this below.

First appeared on the commodity market. Their essence lies in the fact that the parties agree on a deferred payment for the goods. At the same time, when concluding such an agreement, the price is agreed upon in advance. This type of contract is very convenient for both parties, as it allows you to avoid situations where sharp fluctuations in quotes in the future will provoke additional problems in setting prices.

• , as financial instruments, are popular not only among those who trade various assets, but also among speculators. The thing is that one of the varieties of this contract does not imply actual delivery. That is, a contract is concluded for a product, but at the time of its execution, this product is not delivered to the buyer. In this respect, futures are similar to other financial market instruments that can be used for speculative purposes.

What is a futures contract and for what purposes is it used? Now we will reveal this aspect in more detail.

“For example, I want futures for some shares that are not on the broker’s list” is the classic understanding from the Forex market.

Everything is a little different. It is not the broker who decides which futures to trade and which not. This is decided by the trading platform on which trading is conducted. That is, the stock exchange. Sberbank shares are traded on the MB - a very liquid chip, so the exchange provides the opportunity to buy and sell futures on Sberbank. Again, let's start with the fact that all futures are actually are divided into two types:

• Calculated.
• Delivery.

A settled future is a future that does not have delivery. For example Si(dollar-ruble futures) and RTS(futures on our market index) are settlement futures, there is no delivery for them, only settlement in cash equivalent. Wherein SBRF(futures on Sberbank shares) - delivery futures. It will supply shares. The Chicago Exchange (CME), for example, has deliverable futures for grain, oil and rice.

That is, if you buy oil futures there, they can actually bring you barrels of oil.

We just don’t have such needs in the Russian Federation. To be honest, we have a whole sea of ​​“dead” futures, for which there is no turnover at all.

As soon as there is a demand for delivery of oil futures on the MB - and people are ready to transport barrels with Kamaz trucks - they will appear.

Their fundamental difference is that when the expiration date arrives (the last day the futures are traded), no delivery occurs under settlement contracts, and the futures holder simply remains “in the money.” In the second case, the actual delivery of the basic tool occurs. There are only a few delivery contracts in the FORTS market, all of which provide delivery of shares. As a rule, these are the most liquid shares of the domestic stock market, such as: , and others. Their number does not exceed 10 items. Deliveries under oil, gold and other commodity contracts do not occur, that is, they are calculated.

There are minor exceptions

but they relate to purely professional instruments, such as options and low-liquid currency pairs (currencies of the CIS countries, except for the hryvnia and tenge). As mentioned above, the availability of deliverable futures depends on the demand for their delivery. Sberbank shares are traded on the Moscow Exchange, and this is a liquid chip, so the exchange provides the opportunity to buy and sell futures for this share with delivery. It’s just that we, in Russia, do not have the needs for such a prompt supply of gold, oil and other raw materials. Moreover, on our exchange there is a huge number of “dead” futures, for which there is no turnover at all (futures for copper, grain and energy). This is due to banal demand. Traders do not see any interest in trading such instruments and, in turn, choose assets that are more familiar to them (dollar and shares).

Who issues futures

The next question that a trader may have is: who is the issuer, that is, puts futures into circulation.

With shares, everything is extremely simple, because they are issued by the company itself, which originally owned them. At the initial offering, they are bought by investors, and then they begin circulation on the secondary market we are familiar with, that is, on the stock exchange.

In the derivatives market everything is even simpler, but it is not entirely obvious.

A futures is essentially a contract that is entered into by two parties to a transaction: buyer and seller. After a certain period of time, the first undertakes to buy from the second a certain amount of the underlying product, be it shares or raw materials.

Thus, traders themselves are the issuers of futures; the exchange simply standardizes the contract they enter into and strictly monitors the fulfillment of duties - this is called.

• This begs the next question.

If everything is clear with shares: one delivers shares, and the other acquires them, then how should things stand with indices in theory? After all, a trader cannot transfer the index to another trader, since it is not material.

This reveals another subtlety of futures. Currently, for all futures, , which represents the trader’s income or loss, is calculated relative to the price at which the deal was concluded. That is, if after the sale transaction the price began to rise, then the trader who opened this short position will begin to suffer losses, and his counterparty, who bought this futures from him, on the contrary, will receive a profitable difference.

A fixed-term contract is actually a dispute, the subject of which can be anything. For indexes, hypothetically, the seller should simply provide an index quote. Thus, you can create a future for any amount.

In the USA, for example, weather futures are traded.

The subject of the dispute is limited only by the common sense of the exchange organizers.

Do such contracts make any financial sense?

Of course they do. The same American weather futures depends on the number of days in the heating season, which directly affects other sectors of the economy. One way or another, the market continues to perform one of its main tasks: the accumulation and redistribution of funds. This factor plays a huge role in the fight against inflation.

The history of futures

The futures contract market has two legends or two sources.

• Some believe that futures originated in the former capital Japan city Osaka. Then the main traded “instrument” was rice. Naturally, sellers and buyers wanted to insure themselves against price fluctuations and this was the reason for the emergence of this type of contract.
• The second story says, like most other financial instruments, the history of futures began in the 17th century in Holland when Europe was overwhelmed " tulip mania" The onion cost so much money that the buyer simply could not buy it, although some part of the savings was present. The seller could wait for the harvest, but no one knew what it would be like, how much he would have to sell and what to do in case of a crop failure? This is how deferred contracts arose.

Let's give a simple example . Suppose the owner of a farm is growing wheat. In the process of work, he invests money in the purchase of fertilizers, seeds, and also pays employees. Naturally, in order to continue, the farmer must be confident that all his costs will be recouped. But how can you get such confidence if you cannot know in advance what the prices for the crop will be? After all, the year may be fruitful and the supply of wheat on the market will exceed demand.

You can insure your risks using futures. The farm owner can conclude in 6 or 9 months at a certain price. Thus, he will already know how much his investment will pay off.

This is the best way to insure price risks. Of course, this does not mean that the farmer unconditionally benefits from such contracts. After all, situations are possible when, due to severe drought, the year will be lean and the price of wheat will rise significantly above the price at which the contract was concluded. In this case, the farmer will not be able to raise the price, since it is already fixed under the contract. But it is still profitable, since the farmer has already included his expenses and a certain amount in the price established under the contract. profit.

This is also beneficial for the buying side. After all, if the year is bad, the buyer of the futures contract will save significantly, since the spot price for raw materials (in this case, wheat) can be significantly higher than the price under the futures contract.

A futures contract is an extremely significant financial instrument that is used by the majority of traders in the world.

Translating the situation into today's terms and taking as an example Urals or Brent , a potential buyer approaches the seller with a request to sell him a barrel with delivery in a month. He agrees, but not knowing how much he can earn in the future (quotes may fall, as in 2015-2016), he offers to pay now.

The modern history of futures dates back to 19th century Chicago. The first product for which such a contract was concluded was grain. Initially, farm owners brought grain or livestock to Chicago and sold it to dealers. At the same time, the price was determined by the latter and was not always beneficial to the seller. As for buyers, they were faced with the problem of delivery of goods. As a result, the buyer and seller began to do without dealers and enter into contracts with each other.

What is the work plan in this case? She could be next - the owner of a farm was selling grain to a merchant. The latter had to ensure its storage until its transportation became possible.

The merchant who purchased the grain wanted to insure himself against price changes (after all, storage could be quite long, up to six months or even more). Accordingly, the buyer went to Chicago and entered into contracts with a grain processor there. Thus, the merchant not only found a buyer in advance, but also ensured an acceptable price for grain.

Gradually, such contracts gained recognition and became popular. After all, they offered undeniable benefits to all parties to the transaction.

For example, a grain buyer (merchant) could refuse the purchase and resell his right to another.

As for the farm owner, if he was not satisfied with the terms of the transaction, he could always sell his supply obligations to another farmer.

Attention to the futures market was also shown by speculators who saw their benefits in such trading. Naturally, they were not interested in any raw materials. Their main goal is to buy cheaper in order to later sell at a higher price.

Initially, futures contracts only appeared on grain crops. However, already in the second half of the 20th century they began to be concluded on live cattle. In the 80s, such contracts began to be concluded on precious metals, and then to stock indices.

As futures contracts evolved, several issues arose that needed to be addressed.

• Firstly, we are talking about certain guarantees that contracts will be fulfilled. The task of guaranteeing is taken over by the exchange where futures are traded. Moreover, development here went in two directions. Special reserves of goods and funds were created at the exchanges to fulfill obligations.
• On the other hand, resale of contracts has become possible. This need arises if one of the parties to a futures contract does not want to fulfill its obligations. Instead of refusing, it resells its right under the contract to a third party.

Why has futures trading become so widespread? The fact is that goods carry certain restrictions for the development of exchange trading. Accordingly, to remove them, contracts are needed that will allow you to work not with the product itself, but only with the right to it. Under the influence of market conditions, owners of rights to goods can sell or buy them.

Today, transactions in the futures market are concluded not only for commodities, but also for currencies, stocks, and indices. In addition, there are a huge number of speculators here.

The futures market is very liquid.

How futures work

Futures, like any other exchange asset, have their own price and volatility, and the essence of how traders make money is to buy cheaper and sell more expensive.

When a futures contract expires, there may be several options. The parties keep their money or one of the parties makes a profit. If by the time of execution the price of the commodity rises, the buyer receives a profit, since he purchased the contract at a lower price.

Accordingly, if at the time of execution the price of the commodity decreases, the seller receives a profit, since he sold the contract at a higher price, and the owner receives some loss, since the exchange pays him an amount less than for which he bought the futures contract.

Futures are very similar to options. However, it is worth remembering that they do not provide the right, but rather the obligation of the seller to sell, and the buyer to buy a certain volume of goods at a certain price in the future. The exchange acts as a guarantor of the transaction.

Technical points

Each individual contract has its own specification, the main terms of the contract. Such a document is secured by the exchange. It reflects the name, ticker, type of contract, volume of the underlying asset, circulation time, delivery time, minimum price change, as well as the cost of the minimum price change.

Concerning settlement futures, they are of a purely speculative nature. Upon expiration of the contract, no delivery of goods is expected.

It is settlement futures that are available to all individuals on exchanges.

Futures price– this is the price of the contract at a given point in time. This price may change until the contract is executed. It should be noted that the price of a futures contract is not identical to the price of the underlying asset. Although it is formed based on the price of the underlying asset. The difference between the price of the futures and the underlying asset is described by terms such as contango and backwardation.

The price of the futures and the underlying asset may differ(despite the fact that by the time of expiration this difference will not exist).

• Contango— the cost of the futures contract before expiration ( expiration date of futures) will be higher than the value of the asset.
• Backwardation- the futures contract is worth less than the underlying asset
• Basis is the difference between the value of the asset and the futures.

The basis varies depending on how far away the contract expiration date is. As we approach the moment of execution, the basis tends to zero.

Futures trading

Futures are traded on exchanges such as the FORTS exchange in Russia, or the CBOE in Chicago, USA.

Futures trading enables traders to take advantage of numerous benefits. These include, in particular:

• access to a large number of trading instruments, which allows you to significantly diversify your asset portfolio;
• the futures market is very popular - it is liquid, and this is another significant plus;
• When trading futures, the trader does not buy the underlying asset itself, but only a contract for it at a price that is significantly lower than the value of the underlying asset. We are talking about warranty coverage. This is a kind of deposit that is charged by the exchange. Its size varies from two to ten percent of the value of the underlying asset.

However, it is worth remembering that warranty obligations are not a fixed amount. Their size may vary even when the contract has already been purchased. It is very important to monitor this indicator, because if there is not enough capital to cover them, the broker may close positions if there are not enough funds in the trader’s account.

If you find an error, please highlight a piece of text and click Ctrl+Enter.

Exchange futures trading (basics) video tutorial

In this article I will talk about the features of futures trading and show with an example how they differ from stocks.

How to trade futures

In my video lessons where I talk about trading on your own exchange account, recently, I began to pay more attention to futures speculation. From the questions and comments on the video tutorials, I realized that futures trading is of interest to my readers and subscribers, but is less clear to them than, for example, stock trading. To make it clearer, it is necessary to talk in more detail about the features of this instrument - futures.

Comparison of stocks and futures

Futures are a derivative instrument. The word "derivative" means that this instrument is produced
from another product that is its basis (underlying asset). For example, conditionally, milk is a derivative of a cow, and a cow is an underlying asset.

There are futures for stocks, where the underlying asset is shares, for commodities, where the underlying asset is commodities (oil, gas, gold, etc.), for currencies, where the underlying asset is currencies.

The main and most “delicious” distinguishing feature of futures from stocks is leverage – the ability to trade with borrowed funds. Let me give you an example of investing in futures and stocks.

A Practical Example of Futures and Stocks Trading

An ordinary share of Sberbank costs 150 rubles. On the stock exchange you can buy a lot consisting of 10 shares for 1,500 rubles. If the share price rises to 160 rubles, your profit will be:

(160 – 150)*10 = 100 rubles, the return on investment will be: (100/1,500)*100=6.66%

An ordinary share of Sberbank is the base asset of the June futures SRM7, the price of which will be approximately 15,000 rubles (corresponding to a share price of 150). But to buy this futures, it is not necessary to have 15,000 rubles in your trading account; 10% of its value (collateral or abbreviated as G.O.) will be enough. The futures guarantee for ordinary shares of Sberbank is 2,068 rubles (set by the exchange arbitrarily). If you have an amount in your trading account that exceeds the G.O. (RUB 2,068), you can buy 1 futures.

The price of ordinary shares of Sberbank increased to 160 rubles, and the futures price approximately increased to 16,000.

Your profit will be: 16,000 – 15,000 = 1,000 rubles. The return on investment will be: (1,000/2,068)*100 = 48.35%

Note! The same amount of investment, but different returns - 6 and 48%

Beware of Futures

The basic postulate of economics is: “The higher the risk, the higher the potential profit should be.” This law also works in the opposite direction.

If you buy 1 lot of Sberbank ordinary shares, you most likely will not lose all your money. You own an asset (share).

By purchasing a futures, you risk losing all your money if its value fluctuates slightly. Leverage allows you to get extra income, but it can destroy your account.

Technical feature of futures

There is one more technical detail that also needs to be discussed. When you buy a share for 160 rubles, the information is entered into the depository that you own a share whose price is 160 rubles. The actual purchase price of a stock changes only in one case - if you buy more of these shares - then the purchase price is calculated using the averaging formula.

Futures pricing follows a different scenario. Let me give you an example.

You have 2,500 rubles in your account. You bought SRM7 futures at a price of 15,000 rubles. G.O. is reserved from the account. – 2,068 rubles, and the balance is: 2,500–2,068 = 432 rubles. The futures price changes during the trading session, but is fixed during intermediate clearing (clearing is carried out at 14:05, 18:50, 23:50 Moscow time).

Suppose the price has increased and, at the time of clearing, is 15,500 rubles - in this case, 500 rubles of profit (called variation margin) is credited to the account. Now the account has grown to: 500+432=932 rubles. But the purchase price has also changed - now it is the last clearing price (15,500 rubles). And, if the price drops to 15,250, the variation margin becomes negative, but, in fact, you are in the black because you bought the futures at a price of 15,000 rubles.

If the futures price decreases to the level: 15,000 – 432 = 14 568 , then your account has dried up, and the broker will require you to urgently deposit funds to secure an open position, or will forcefully close it.

The principle described above explains why the bid or ask price of a futures contract changes with each clearing, and a winning position may appear to be a losing one due to a negative variation margin.

There is only one way out - write down the entry points of your positions and monitor the status of your trading account.

The principle of futures trading

If you use all your funds only to speculate in futures, then most likely you will lose them, because increased risk kills the account over time - it's basic mathematics.

It is wise to place your funds in assets with different levels of risk. For example, put 70% of your funds in a bank deposit, invest 20% in stocks, and leave 10% for futures speculation.

There is also a risk-free investment management scheme, when you put all your funds on a bank deposit, and risk only the accrued interest - you buy futures with this money. If you lose your money, the body of the deposit (the initial investment amount) will remain unchanged. This scheme reduces the level of potential profit, but guarantees the safety of your funds.