What is a futures in simple words and what are its risks? Futures contract. What it is? Futures contract in simple words

Russian traders are accustomed to using such an instrument as futures in their activities. RTS, MICEX and other exchanges make it possible to do this in relation to a wide range of financial transactions. What are the features of implementing appropriate trading strategies? What are futures and how do they help traders make money?

What are futures

According to the generally accepted definition among traders, futures are financial instruments that allow the execution of futures contracts on an underlying asset, which imply an agreement between the buyer and seller on the price and timing of the transaction. In turn, other aspects of this asset, such as, for example, quantity, color, volume, etc., are specified in separate specifications of the agreement. Futures are a fairly universal financial instrument. They can be adapted to a wide variety of trading areas.

Are futures derivatives?

Yes, this is their variety. The term "derivative" is understood by many traders as a synonym for the phrase "derivative financial instrument", that is, one that is complementary to classic purchase and sale transactions. A derivative and futures are a written agreement that defines the terms of a contract for the seller and the buyer. The specificity of any derivative is that, in essence, it itself can be the subject of a purchase and sale agreement. That is, there may not be a real transfer of goods from the supplier to the buyer.

Futures history

In order to study in sufficient detail the essence of futures, it will be useful to find out how these financial instruments appeared, what are the main historical stages of their introduction into financial circulation. Some traders believe that the mechanism of the relationship between the seller and the buyer, which today fits the definition of futures, appeared long before the instrument in question appeared on the market. As often happens in economics, first a phenomenon appeared, and then a term characterizing it.

The market demanded innovation

One of the main types of goods has always been grain. If we talk about the period until the end of the 19th - beginning of the 20th century, then it was among the key items of world trade. Farmers who grew the grains shipped them to buyers by land or sea. In the autumn there was often an oversupply of goods on the grain market - farmers sought to sell their crops as quickly as possible. In turn, in the spring there could be a shortage of grain, which simply did not have time to grow, while what was not sold had time to spoil in the fall, since there was often nowhere to store it. The market somehow needed to resolve this imbalance. This is how urgent financial instruments appeared that allowed grain farmers, as well as suppliers of any other agricultural goods, to enter into contracts with buyers even before the grains had time to ripen or arrive at the point of sale.

Universal tool

Those agreements began to be called forward agreements (from the English forward - “forward”). Futures are, one might say, an adaptation of a forward contract to the peculiarities of trading on the stock exchange. Experts associate their appearance with established transaction standards in business, thanks to which appropriate agreements can be concluded regardless of the type of product being sold. As a result, futures trading has spread to transactions in which not only grain and other agricultural products are sold and purchased, but also raw materials, metals, some finished food products: sugar, coffee, etc. To a relatively new, if we talk about the history of commodity relations, financial exchanges have also adapted to the instrument.

From raw materials to stock indices

There is information that the first trading of futures in trading was carried out on the Dow Jones exchange for transactions on the index of the same name. As a result, financiers received an excellent tool - just as grain suppliers could do in the autumn. Over time, index futures became so widespread that trading volumes on them sometimes began to exceed those of classic transactions.

Futures on the foreign exchange market

The new financial instrument also began to penetrate the foreign exchange markets. One of the factors that made traders interested in using futures was, according to some experts, the abolition of the “gold standard” in the United States in 1971. Immediately after the entry into force of the new norms, quotes on the world currency market began to undergo strong fluctuations. Traders have suggested that futures are the instrument that will help the market get through the high volatility phase.

Appropriate trading mechanisms were introduced, and due to their rapid growth in popularity, experts assumed that this was exactly what the market demanded. Futures for the dollar and ruble, as noted in a number of sources, were first concluded in April 1998. On the first day of trading, the total amount of contracts exceeded 200 million rubles.

Futures in Russia

By the way, the history of Russian stock trading dates back to the times of Peter the Great. And at the beginning of the 20th century, according to some sources, 87 commodity exchanges functioned in Russia. From the late 20s until 1991, this trade institution did not function in our country. But after Russia’s transition to a free market, it became one of the key ones for the country’s economy.

When did the first futures transactions begin in Russia? There is information that the first precedents for the use of this financial instrument were recorded in 1996 on the St. Petersburg Stock Exchange. The first analytical articles began to appear, putting forward theses about the prospects of using futures in Russian trading. In the 1990s, contracts on government and municipal bonds began to be executed through this financial instrument.

Now futures are used on both major ones (RTS and MICEX). The first one even has a specialized segment for trading using this financial instrument - FORTS. Futures and options (another popular way to enter into contracts) are available on FORTS. It will be useful, by the way, to consider their differences.

How do futures differ from options?

The key criterion for distinguishing futures from options is that the owner of the former must fulfill the conditions of the agreement. In turn, the second financial instrument allows the party to the transaction not to fulfill the conditions specified in the contract. For example, do not sell shares if they have fallen in price compared to the price at the time of purchase.

Types of futures. Staged

However, let's continue our study of futures. Modern traders classify them into two types. Firstly, there are so-called staged futures. They represent a contract, at the time of execution of which the buyer undertakes to purchase, and the seller - to cede, the quantity of some asset specified in the specifications of the transaction. In this case, the futures price will be the one fixed at the most recent trading. If the contract expires and the seller does not relinquish the asset, he may face penalties.

Calculated

There are also settlement futures. Their peculiarity is that the seller and buyer pay each other in those amounts that make up the difference between the price of the asset at the time of signing and execution of the agreement, regardless of its actual delivery.

Futures specification structure

One of the key elements of futures transactions is the specification. It is a source that sets out the basic terms of the contract. The structure of the specifications for transactions of the type under consideration is usually as follows: the name of the agreement, its specific type - settlement or staged, the value of the underlying asset, timing, as well as some speculative parameters are indicated. Among the key ones is a tick, or the minimum step of a price change.

Its values ​​depend on the specific asset. For wheat, if we talk about the main world exchanges, it is about 5 cents per ton. Knowing the volume of a futures contract, a trader can easily calculate the total price change for the entire amount of the asset. For example, if an agreement is concluded for 200 tons of wheat, then it can be calculated that the minimum price adjustment will be $10.

Oil futures

How is trading, say, futures for Brent and other types of oil carried out? Very simple. On modern commodity exchanges, this type of oil is traded, as well as two more - Light Sweet and WTI. All of them are called marker oils, since other types of oil are valued based on their correlation with the cost of the ones being traded. Contracts are executed on two main exchanges - NYMEX, in New York, and ICE, in London. The American market sells Light Sweet oil, and the English market sells two other grades. The peculiarities of black gold trading are that they are 24/7.

The generally accepted benchmark for traders on the planet is the Brent grade. This oil is a marker oil for a significant part of the world's black gold grades, including Russian Urals oil. True, as some analysts note, there are activists among traders who do not consider it advisable to hold Brent as a standard. The main reason is that it is mainly mined only in the North Sea, in Norwegian fields. Their reserves are decreasing, as a result of which, as some analysts believe, the liquidity of the product is decreasing, and the price of oil may not reflect real market trends.

Brent futures can be easily recognized by the abbreviation BRN of the London ICE exchange. The full name of the contract is Brent Crude Oil. Oil is supplied under monthly contracts. Accordingly, transactions can be concluded at intervals of a month. The maximum contract duration is 8 years. There are short-term oil futures, and there are long-term ones. The value of the corresponding contract is 1 thousand barrels. The value of 1 tick is a cent, that is, the minimum change in the contract price is $10.

How to win in oil trading using futures? Oil prices, according to some economists, depend on the state of affairs in the global economy. If a person is well versed in this topic, then he can try to enter into a contract to buy or sell oil at a set price, thus opening a long or short position, respectively. Let’s say that with an oil price of $80 per barrel, a person assumes that in 3 months the price of raw materials will rise to $120. He enters into 1 minimum contract to buy black gold at a price of $90 per barrel. Comes 3 months. Oil, as expected, rises in price to $120 per barrel, but the trader ends up with it at a price of $90. According to the terms of the exchange, he is immediately credited with the required difference of $40.

Futures and currencies

Obviously, in order to trade oil futures, a trader will need a significant investment of money. The minimum contract size, as we have already noted, is 1 thousand barrels, that is, if we take the current, not the highest prices for black gold, an investment of approximately 50 thousand dollars will be required. However, a trader has the opportunity to earn money by concluding dollar futures on the MICEX, for example. According to the terms of the exchange, the minimum contract volume is 1 thousand dollars. Tick ​​- 10 kopecks.

For example, a person assumes that the US dollar will decrease from the current 65 rubles to 40. He opens a long position to sell one contract at a price of, say, 50 dollars, for a period of 1 month. A month later, the ruble is really strengthening its position - up to 40 units per US dollar. A person has the right to sell the amount specified in the contract specification at an exchange rate of $50 and earn 10 rubles from each unit of American currency. But if he doesn’t get the exchange rate right, he will have to fulfill his obligations to the exchange one way or another. This usually happens by placing a deposit of the required size on your trading platform account.

Similar earning mechanisms are possible when trading shares of enterprises. With a balanced, qualified analysis of the state of affairs on the market, a trader can count on excellent earnings through futures. Trading on modern exchanges is quite comfortable, transparent and protected by Russian legislation. As a rule, a trader has convenient analytical tools at his disposal, for example, a futures chart for the selected asset. The use of the corresponding one among Russian financiers has gained quite stable popularity.

In today's market, there are a huge variety of ways to make money - even by purchasing assets that you don't need at all. To make a profit, it is enough to sell them at a higher price in a good period. We will discuss how popular and safe this activity is in the article below.

Futures contracts: concept and application

Futures - what is it? This is the most popular way to insure your own risks that have a high level of liquidity on the exchange market. Therefore, not a single large company with an international reputation has long been able to do without this financial instrument.

A futures contract is a document that agrees on the process of buying or selling an asset. As a rule, when concluding such agreements, both parties to the transaction agree on only two key points: the timing of potential deliveries and the price of the goods. Other characteristics are specified in the specification earlier (this includes labeling, packaging, transportation, and others).

Such transactions speed up the process of purchasing and selling products, which is why they have captured a significant market segment in economic relations between entrepreneurs.

Key Features of Futures

Futures - what is it? This is not only a type of transaction, but also a set of characteristics that distinguishes them from other types of agreements between partners. So, we can highlight a number of properties that they possess:

1. Futures are characterized by high liquidity because, when concluded, they comply with a set of conditions presented by the exchange.
2. Standard and flexible in use - easily sold and liquidated by concluding a reverse agreement.
3. The risks of a futures contract tend to zero (but are not equal to it), since such a transaction is aimed not at the actual fact of buying and selling a particular product, but at a price game. For statistics: only a twentieth of the concluded contracts result in actual deliveries, which is due to the unpredictable behavior of the price curve.
4. When concluding a futures contract, both parties are confident in their partner, since their obligations are insured by the clearing house operating within the exchange.
5. Such transactions involve only those goods whose price cannot be predicted several periods in advance.

Why do you need futures trading?

A futures contract cannot be considered solely as an instrument of the exchange market, since it also performs certain functions in the economic activities of an enterprise.

Thus, with the process of economic evolution, relations between business entities become more bitter and risky. Therefore, futures trading on the stock exchange is a natural process of survival for an entrepreneur, in which he can not only carry out his operational activities, but also strive to receive maximum profit for this.

From the point of view of economic activity, this type of relationship is a direct way to reduce risks by reinsuring changes in prices for a particular product. Even in such conditions it is possible, albeit illusory, to predict the level of income in future periods.

Futures should not be confused with forwards

It so happened historically that a futures contract is often confused with a forward contract - either due to the abundance of borrowed words in exchange terminology, or due to illiteracy.

A forward is a transaction with increased risk, since failure to fulfill obligations under an agreement can result in huge penalties, while the agreements discussed in this article can be easily terminated, as discussed above.

Moreover, it is possible to draw up a futures contract - due to its nature - only within the exchange, but another - on the contrary, outside the scope of its operation. Also, forward contracts are concluded in a purchase and sale transaction of absolutely any asset, while futures support relations only in the context of a limited range of goods. And, most importantly, no one insures forwards, so the risks associated with them should be viewed in a slightly different prism.

Types of futures contracts

Despite their narrow focus, futures have a wide range of varieties, which are classified according to certain criteria.

To begin with, it is worth understanding that a futures contract can be either commodity or financial. The first is classified depending on the group of assets being sold. It can be:

• wood processing industry products;
• raw materials of the oil refining industry;
• metals;
• other semi-finished products.

Financial contracts in the context of futures are as follows:

• interest (occurs in bond transactions);
• index (the product changes value depending on stock market indicators);
• foreign exchange (contracted to earn money on the dynamics of currency quotes);
• and the last option is a stock one (they are quite rare; the second name is a futures contract for shares).

The main feature of a futures contract

The vast majority of business entities are attracted to futures contracts by the fact that they are standardized (for all types of transactions and under different conditions of implementation). This means that the transaction does not have a clearly defined relationship between the seller and the buyer - between them there is always an intermediary in the person of the exchange clearing house.

The futures contract price and delivery volumes are the only criteria that differ in such arrangements. This feature cannot be considered a disadvantage, since it has a number of positive consequences:

• the deal is concluded quickly and painlessly for both parties;
• the number of contracts is growing;
• mutual settlements are simple, which is a significant attractive feature;
• There are no resource or financial costs for drawing up a template, since a standard contract is concluded.

Futures market today

Purchasing a futures contract is a complex and rather complex process, despite the simplicity of its preparation. There are three major institutions involved here.

The first element is the direct place of the transaction - the exchange itself. It does not carry out any commercial activities and only coordinates the relationships between participants - potential sellers and buyers.

The second element is the clearing house. Without it, it is impossible to carry out any of the transactions, since it is a kind of guarantor and insurer in the fulfillment of the bilateral obligations of the parties to the agreement.

And the last element is the custodian of the treasured commodity, around which vigorous activity on the stock exchange unfolds. Warehouses play this role.

In order for the above institutions to function, the parties to the contract make a certain monetary contribution when concluding a transaction to cover operating expenses.

Futures market: transaction procedure

When concluding a contract, the procedure for its execution is divided into three stages. In this case, the final day is the day of fulfillment of obligations (closing of the transaction).

To begin with, the transaction is registered. On the same day, the necessary contributions from the participants are paid to the treasury, and the fact of the relationship is also registered in the clearing house.

At the second stage, the transaction remains open, the declared amounts of variable costs are paid to the treasury, as well as the missing funds for the initial payments, if the rates have been changed by the clearing house.

At the last stage, the transaction is closed, the profit is calculated and divided, the subject of the agreement (asset) is transferred into the possession of the buyer. If the contract is canceled by registering a reverse contract, then fees for this service are paid.

Hedging as an element of the futures market

None of the market participants wants to remain at a loss due to undesirable price dynamics of the asset stated in the transaction, so everyone strives to minimize their risks. For this purpose, hedging with futures contracts is actively used in practice.

However, it is worth noting that this procedure, in the event of an unfavorable price jump, will not bring the participant the desired profit, but it can still protect against losses. You can hedge the transaction process either completely or partially (in this case, only certain price ranges are insured).

Both sellers and buyers can minimize risks, but it is worth remembering that the level of hedge often depends on the overall financial health of the exchange, since speculation in the purchase and sale processes has not yet been canceled. Therefore, do not forget: the higher the turnover in the market, the safer your potential profit.

A futures is a derivative financial instrument, a contract to buy/sell an underlying asset at a specific date in the future, but at the current market price. Accordingly, the subject of such an agreement (the underlying asset) can be stocks, bonds, commodities, currency, interest rates, inflation rates, weather, etc.

A simple example. The farmer planted wheat. The price of this product on the market today, conditionally, is 100 rubles per ton. At the same time, forecasts are coming from all sides that the summer will be good and the harvest in the fall will be excellent, which will invariably cause an increase in supply on the market and a fall in prices. The farmer does not want to sell grain in the fall at 50 rubles per ton, so he negotiates with a certain buyer that he is guaranteed to supply him with 100 tons of grain in 6 months, but at the current price of 100 rubles. That is, our farmer thus acts as a seller of the futures contract.

Fixing the price of a product that will be delivered after a certain period at the time of concluding a transaction is the meaning of a futures contract.

Derivatives emerged along with trading. But initially it was a kind of unorganized market, based on oral agreements between, for example, merchants. The first contracts for the supply of goods at a certain point in the future appeared with the letter. Thus, already on cuneiform tablets from centuries BC, which were found during excavations in Mesopotamia, one can find a certain prototype of the futures. By the beginning of the 18th century, the main types of derivative financial instruments appeared in Europe, and capital markets acquired the features of modern ones.

In Russia today you can trade futures on the Moscow Exchange derivatives market - FORTS, where one of the most popular instruments is RTS index futures. The volume of the futures market around the world today significantly exceeds the volume of actual trading in the underlying assets.

The BCS company is the market leader in terms of turnover on the FORTS derivatives market. Earn money with us!

Technical details

Each futures contract has specification- a document secured by the exchange itself, which contains all the main terms of this contract: - name; — ticker; — type of contract (settlement/delivery); — size (number of units of the underlying asset per futures); — circulation period; - date of delivery; — minimum price change (step); — cost of the minimum step.

Thus, futures for the RTS index are now traded under the ticker RIZ5: RI - code of the underlying asset; Z — execution month code (in this case December); 5 - code of the year of contract execution (last digit).

Futures contracts can be either “settled” or “delivered”. A delivery contract implies the delivery of an underlying asset: you agreed to buy gold in 6 months at a certain price - you will receive it, everything is simple here. The settlement futures contract does not imply any delivery. Upon expiration of the contract, profits/losses are recalculated between the parties to the contract in the form of accrual and write-off of funds.

Example: We bought 1 futures contract on the Russian RTS index, assuming that by the end of the contract's maturity the domestic index will rise. The circulation period has ended, or, as is often said, the expiration date has arrived ( expiration date), the index grew, we received a profit, no one supplied anything to anyone.

The maturity of a futures contract is the period during which we can resell or buy back this contract. When this period ends, all participants in transactions with the selected futures contract are obliged to fulfill their obligations.

The futures price is the price of the contract at the current moment. It changes during the life of the contract, right up to the expiration date. It is worth noting that the price of a futures contract differs from the price of the underlying asset, although it has a close direct dependence on it. Depending on whether the futures is cheaper or more expensive than the price of the underlying asset, situations called “contango” and “backwardation” arise. That is, today’s price reflects some circumstances that may occur, or the general mood of investors regarding the future of the underlying asset.

Benefits of Futures Trading

The trader gets access to a huge number of instruments traded on different exchanges around the world. This provides opportunities for broader portfolio diversification.

Futures have high liquidity, which makes it possible to apply various strategies.

Reduced commission compared to the stock market.

The main advantage of a futures contract is that you do not have to shell out as much money as you would if you bought (sold) the underlying asset directly. The fact is that when performing a transaction, you use warranty coverage (GS). This is a refundable fee that the exchange charges when opening a futures contract, in other words, a kind of collateral that you leave when making a transaction, the amount of which depends on a number of factors. It is not difficult to calculate that the leverage available in futures transactions allows you to increase potential profits many times over, since the leverage is most often noticeably lower than the cost of the underlying asset. However, we should not forget about the risks.

It is important to remember that the GO is not a fixed value and can change even after you have already purchased the futures contract. Therefore, it is important to monitor the status of your position and the level of the GO, so that the broker does not close your position at a time when the exchange has slightly increased the GO, and there are no additional funds in the account at all. The BCS company provides its clients with the opportunity to use the service. Access to trading on the derivatives market is provided on QUIK or MetaTrader5 terminals.

Trading Strategies

One of the main advantages of futures is the availability of various trading strategies .

The first option is risk hedging. Historically, as we wrote above, it was this option that gave birth to this type of financial instrument. The first underlying asset was various agricultural products. Not wanting to risk their income, farmers sought to conclude contracts for the supply of products in the future, but at currently agreed prices. Thus, futures contracts are used as a way to reduce risks by hedging both real activities (production) and investment operations, which is facilitated by fixing the price now for the asset we have chosen.

Example: we are now seeing significant fluctuations in the foreign exchange market. How to protect your assets during periods of such turbulence? For example, you know that in a month you will receive revenue in US dollars, and you do not want to take on the risk of changes in the exchange rate during this period of time. To solve this problem, you can use a futures contract for the dollar/ruble pair. Let's say you expect to receive $10 thousand and the current exchange rate suits you. In order to hedge yourself against unwanted changes in the exchange rate, you sell 10 contracts with the corresponding expiration date. Thus, the current market rate is fixed, and if it changes in the future, it will no longer be reflected in your account. The position is closed immediately after you receive real money.

Or another example: You have a portfolio of Russian blue chips. You plan to hold the shares long enough, more than three years, in order to be exempt from paying personal income tax. But at the same time, the market has already grown quite high and you understand that a downward correction is about to happen. You can sell futures for your shares or the entire MICEX index as a whole, thereby insuring yourself against a market decline. If the market declines, you can close your short positions in futures, thereby leveling out current losses on the securities in your portfolio.

Speculative operations. Two main factors contributing to the growing popularity of futures among speculators are liquidity and high leverage.

The speculator’s task, as is known, is to make a profit from the difference in purchase and sale prices. Moreover, the profit potential here is maximum, and the holding period for open positions is minimal. At the same time, in favor of the speculator there is also such a thing as a reduced commission compared to the stock market.

Arbitration operations are another option for using futures, the meaning of which comes down to making a profit from “playing” on calendar/intercommodity/intermarket spreads. .

To learn more about futures trading, you can read books like Todd Lofton's Futures Trading Basics. In addition, you can visit various.

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Surely you have already noticed on various financial websites, where there are currency quotes and economic news, a special section “Futures”. At the same time, there are a large number of their varieties. In this article we will talk about what they are, why they are needed and what they are.

1. What is a futures in simple words

Futures(from the English “futures” - future) is one of the liquid financial instruments that allows you to buy/sell goods in the future at a pre-agreed price today. Belongs to the class of derivative financial instruments (derivatives). This means that the price is determined primarily by the price of the underlying asset.

For example, if you buy December futures in the summer, you will receive delivery of this product in December at the price you paid in the summer. For example, these could be stocks, currency, commodities, stock index, bonds. The moment of completion of the contract is called expiration.

They have become widespread since the 1980s. Nowadays, futures are just one of the instruments for speculation by many traders.

Nobody issues futures, as happens with the issue of shares or bonds. They are an obligation between the buyer and the seller (i.e., in fact, traders on the exchange themselves create them).

For example, you own a large block of shares in a company. The stock market is expected to decline. The natural desire of the investor will be to get rid of them. But selling such a large volume in a short period of time is problematic, as this can cause a price collapse. Therefore, you can go to the futures market and open a short position there.

Also, a similar scheme is used during periods of uncertainty. For example, there are some financial risks. They may be related to the upcoming elections in the country, referendums, and negotiations. Instead of selling all your assets, you can open opposite positions, thereby protecting your investment portfolio from losses. If the futures fall, you will make money on it, but you will lose on the stock. Likewise, if the shares rise, you will make money on this, but will lose on the derivative instrument. You seem to be maintaining the "status quo".

Note

In slang they are called "futures".

2. How the futures price is calculated

F = Spot price × + Storage cost

• F - futures price
• Spot price (S) - current price of the underlying asset
• Stavka - current Central Bank refinancing rate (key rate)
• Storage cost- storage and insurance costs. For example, livestock must be fed and kept somewhere.
• Count_month - the number of months until delivery divided by 12. For example, if there are 6 months left, then the coefficient is 0.5.

As the delivery date approaches, the S (spot) and F (futures) prices converge.

Basis (B) is the difference between the spot price of the underlying asset and the futures price. Most often a positive value, but it can also be negative. Basis formula:

B = S - F

Spread is the difference between two futures prices with different delivery dates.

Spread = F 1 - F 2

For example, the price for six-month oil contracts is $62, and after three months it is $62.3 with the current spot price of 62.55. This means the spread between the 3 and 6 month contract is $0.3 (thirty cents).

Note 1

In textbooks you can see another name - “futures contract”. In fact, this is one and the same thing, so you can say it as you prefer.

Note 2

A forward is very similar in definition to a futures, but is a one-time transaction between a seller and a buyer (a private arrangement). Such a transaction is carried out outside the exchange.

Any futures must have an expiration date, its volume (contract size) and the following parameters:

• name of the contract
• code name (abbreviation)
• type of contract (settlement/delivery)
• contract size - the amount of the underlying asset per contract
• terms of the contract
• minimum price change
• minimum step cost

3. Types of futures

There are two types

1. Calculated
2. Delivery

With the first ones everything is simpler, in that nothing will be supplied. If they are not sold before execution, the transaction will be closed at the market price on the last day of trading. The difference between the opening and closing prices will be either a profit or a loss for their holder. Most futures are settled.

The second type is delivery. Even from the name it is clear that at the end of time they will be delivered in the form of a real purchase. For example, it could be stocks or currency.

Essentially, a futures is an ordinary exchange instrument that can be sold at any time. It is not necessary to wait for its completion date. Most traders strive to simply earn money, and not actually buy something with delivery.

For a trader, futures on indices and stocks are of greatest interest. Large companies are interested in reducing their risks (hedge), especially in commodity supplies, so they are one of the main players in this market.

4. Why are Futures needed?

You may have a logical question: why are futures needed when there are base prices? The history of their appearance goes back to 1900, when grain was sold.

To insure against strong fluctuations in the cost of goods, the price of future products was set in winter. As a result, regardless of the yield, the seller and buyer had the opportunity to sell/buy goods at an average price. This is a kind of guarantee that one will have something to eat, the other will have money.

Futures are also needed to predict the future price, or more precisely, what the trading participants expect it to be. The following definitions exist:

1. Contango is a premium to the spot price. The asset is trading at a lower price than the futures price.
2. Backwardation is a discount relative to the spot price. The asset is trading at a higher price than the futures price

5. Futures trading - how and where to buy

When purchasing futures on the Moscow Exchange, you must deposit your own funds for approximately 1/7 of the purchase price. This part is called "guarantee" (GS). Abroad, this part is called margin (in English “margin” - leverage) and can be a much smaller value (on average 1/100 - 1/500).

Entering into a supply contract is called "hedging".

In Russia, the most popular futures are the RTS and SI dollar index.

You can buy futures from any Forex broker or on the MICEX currency section. At the same time, free “leverage” is provided, which allows you to play for decent money, even with a small capital. But it is worth remembering the risks of using your shoulder.

The best brokers for MICEX (FOTS section):

6. Futures or Stocks - which is better to trade?

What to choose for trading: futures or stocks? Each of them has its own characteristics.

For example, by purchasing a share you can receive annual dividends (as a rule, these are small amounts, but nevertheless, there is no extra money). Plus, you can hold shares for as long as you like and act as a long-term investor and still receive at least a small percentage of profit every year.

Futures are a more speculative market and holding them for more than a few months hardly makes sense. But they are more disciplined for the trader, since here you have to think about a shorter period of play.

Commissions for transactions on futures are about 30 times lower than on stocks, and plus, leverage is issued free of charge, unlike the stock market (here a loan will cost 14-22% per annum). So for lovers of scalping and intraday trading, they are perfect.

In the stock market, you cannot short some companies. Futures do not have this problem. You can buy long and short all available assets.

7. Futures on the Russian market

There are three main sections on the Moscow Exchange where futures are available

1. Stock
   • Shares (only the most liquid)
   • Indices (RTS, MICEX, BRICS countries)
   • Volatility of the MICEX stock market
2. Monetary
   • Currency pairs (ruble, dollar, euro, pound sterling, Japanese yen, etc.)
   • Interest rates
   • OFZ basket
   • RF-30 Eurobond basket
3. Commodity
   • Raw sugar
   • Precious metals (gold, silver, platinum, palladium)
   • Oil
   • Average price of electricity

The name of the futures contract has the format TICK-MM-YY, where

• TICK - ticker of the underlying asset
• MM - execution month
• YY - year of execution

For example, SBER-11.18 is a futures contract on Sberbank shares with execution in November 2018.

There is also an abbreviated futures name in the format CC M Y, where

• СС - short code of the underlying asset of two characters
• M - letter designation of the month of execution
• Y - last digit of the year of execution

For example, SBER-11.18 in its abbreviated name looks like this - SBX5.

We recently looked at the topic. As you know, an option is a contract that gives its buyer the right to transact with an asset within a specified period at a set price. The difference between futures contracts and options is that the transaction is mandatory for the buyer of the futures in the same way as for the seller. In this article, I will cover the basic concepts of futures trading.

Basic concepts of futures contracts and examples

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A futures contract (or simply futures) is a contract under which the buyer agrees to buy and the seller agrees to sell an asset by a certain date at a price specified in the contract. These contracts are classified as exchange-traded instruments because they are traded exclusively on exchanges under standardized specifications and trading rules. The counterparties stipulate only the price and execution date. All futures can be divided into 2 categories

• Supply;
• Calculated.

Deliverable futures involve delivery of an asset on the contract execution date. Such an asset can be a commodity (oil, grain) or financial instruments (currency, shares). Settlement futures do not provide for the delivery of an asset and the parties make only cash settlements: the difference between the contract price and the actual price of the instrument on the settlement date. A more detailed classification of futures is based on the nature of the assets: commodities or financial instruments:

Initially, futures arose as delivery commodity contracts, primarily for agricultural products: in this way, suppliers and buyers sought to protect themselves from risks associated with poor harvests or storage conditions of products. For example, the world's largest Chicago Mercantile Exchange (CME) was created in 1848 specifically for trading agricultural contracts. Financial futures appeared only in 1972. Even later (in 1981), the most popular futures for the S&P500 stock index appeared today. According to statistics, only 2-5% of futures contracts end in delivery of the asset. Tasks such as hedging transactions and speculation come to the fore.

Each futures has a specification that may include:

• name of the contract;
• type (settlement or delivery) of the contract;
• contract price;
• price step in points;
• circulation period;
• contract size;
• unit of trade;
• delivery month;
• date of delivery;
• trading hours;
• delivery method;
• restrictions (for example, on fluctuations in the contract currency).

During the time before the futures contract is executed, the spot price of an asset can be either higher or lower than the contract price, depending on this, futures states are distinguished, called contango And backwardation.

• Contango– a situation in which an asset is traded at a lower price than the futures price, i.e. Transaction participants expect an increase in the price of the asset.
• Backwardation– the asset is traded at a higher price than the futures price, i.e. Transaction participants expect a price reduction.

The difference between the futures price and the spot price of an asset is called basis futures contract. For example, in the case of contango the basis is positive. On the delivery day, the futures and spot prices converge to within the cost of delivery, this is called convergence. The reason for convergence is that the asset storage factor ceases to play a role.

In the event that there is a consistent decline in the basis of the futures contract, the dealer can play on this. For example, buying grain in November and simultaneously selling futures for delivery in March. When the delivery date arrives, the dealer sells the grain at the current spot price and at the same time makes the so-called offset transaction at the same price, buying futures. Thus, hedging price risk through futures allows you to recoup the costs of storing goods. Just like other exchange instruments, futures allow you to apply traditional methods of technical analysis. The concepts of trend, support and resistance lines are valid for them.

Margin and financial result of a futures contract

When opening a transaction with a futures contract, insurance coverage, called deposit margin, is blocked on the account of each of its participants. It usually ranges from 2 to 30% of the contract value. After the transaction is completed, the deposit margin is returned to its participants. Sometimes situations arise in which the exchange may require additional margin. This situation is called.

Typically this is due to . If the transaction participant is unable to deposit additional margin, he is forced to close the position. In the event of a massive closing of positions, the price of the asset receives an additional impulse to change. For example, when long positions are closed en masse, the price of an asset may fall sharply. On the FORTS market, the guarantee for delivery futures 5 days before execution increases by 1.5 times. If one of the parties refuses to fulfill the terms of the contract, the blocked amount of the guarantee security is withdrawn as a penalty and transferred to the other party as compensation. Control over the fulfillment of financial obligations by the parties to the transaction is carried out by the clearing house.

In addition, every day at the close of the trading day, a variation margin is accrued to the open futures position. On the first day, it is equal to the difference between the price at which the contract was concluded and the closing price of the day (clearing) for this instrument. On the contract execution day, the variation margin is equal to the difference between the current price and the last clearing price. Thus, the result of a transaction for a specific participant is equal to the amount of variation margin accrued for all days while the position under the contract is open.

The financial result of the transaction is equal to VM1+VM2+VM3=600-400+200=400 rubles.

If the futures are settled and are purchased for speculative purposes, as well as in a number of other situations, it is preferable not to wait for the day of its execution. In this case, the opposite transaction is concluded, called offset. For example, if 10 futures contracts were previously purchased, then exactly the same number must be sold. After this, the obligations under the contract are transferred to its new buyer. On the New York Mercantile Exchange NYMEX (organizationally part of the CME), no more than 1% of open positions in WTI reach delivery. An important difference between a settlement futures and a deliverable one is that when a settlement futures position is open, the guarantee margin does not increase on the eve of execution. The final price on the execution day is based on the spot price. For example, in the case of gold futures, the London fixing on the COMEX (Commodity Exchange) is taken.

Futures and contracts for difference: similarities and differences

The arithmetic of calculating profit when trading settled futures is reminiscent of a popular class of derivative instruments called CFD (Contract for Difference, contract for difference). By trading CFDs, a trader makes money on the difference between the prices of an asset when closing and opening a trading position. The asset can be shares, stock indices, exchange commodities at spot prices, futures themselves, etc. The main similarities and differences between futures and CFDs can be presented in table form:

Unlike futures, CFDs are traded with Forex brokers along with currency pairs, but not around the clock, but during trading hours on the relevant exchanges that deal with specific underlying assets. One of the most liquid futures contracts traded in the Russian FORTS system is RTS index futures. It is listed as a CFD on the streaming quote chart investing.com/indices/rts-cash-settled-futures.

However, it is important not to confuse an exchange-traded instrument with an over-the-counter instrument. The fundamental difference between them is that the price of an exchange-traded instrument is determined by the balance of supply and demand during trading, while dealing centers only allow you to place bets on the rise or fall of the price, but not to influence it. Among the most liquid futures contracts, we should mention, first of all, futures for stock indices and oil. On American exchanges, futures for the Dow Jones and S&P500 indices are traded on the Chicago Mercantile Exchange, and oil futures are traded on the New York Mercantile Exchange NYMEX.

The most popular futures on the Moscow Exchange are for the RTS index (30% of the total futures trading turnover) and for the US dollar - ruble pair (60% of the turnover). According to the specification, the contract price for the RTS index is equal to the index value multiplied by 100, and the cost of the minimum price step (10 points) is equal to $0.2. Thus, today the contract is trading above 100 thousand rubles. This is one of the reasons why non-professional traders choose more affordable CFDs.

For example, the minimum lot for CFD RUS50 (RTS index symbol) is 0.01, and the price of 1 point is $10, so with a maximum leverage of 1:25, a trader can trade the index with $500 in his account. In total, CFDs are available to the company's clients on 26 index and 11 commodity futures. For comparison, the largest one in Russia offers CFD trading on only 10 index and 3 commodity futures.

There are exchange goods for which the concept of market price has no direct economic justification. First of all, this is oil. The first futures transactions in the oil market were made in the early 1980s. But in 1986, the Mexican oil company PEMEX was the first to link spot prices to futures prices, which quickly became the standard.

With global oil production of all grades less than 100 million barrels per day, on the London ICE Futures Europe platform an average of about a million futures contracts for Brent oil are concluded per day. According to the specification, the volume of one contract is 1000 barrels. Thus, the total volume of oil futures traded on this one platform is approximately 10 times higher than global oil production. Small (about 1 million barrels or less) changes in WTI oil reserves in the United States are not able to affect supply, but lead to futures trading. On November 29, 2016, trading in Urals oil futures was launched on the St. Petersburg International Mercantile Exchange (SPIMEX).