What is futures?
Key points
Futures means that buyers and sellers agree to settle a specified quantity of spot subject matter at a specified time, price and other trading conditions by signing a contract.
Based on the types of spot subject matter, futures can be divided into agricultural products futures, metal futures, energy futures and financial futures and other types.
Investors who participate in futures trading can generally be divided into two categories: speculators wait for opportunities to make profits in price fluctuations, and hedgers lock in profits and costs by buying and selling futures.
Detailed explanation of concept
Different from the actual spot that can be traded, futures means that buyers and sellers agree to settle a specified quantity of spot subject matter at a specified time, price and other trading conditions by signing a contract.
The subject matter can be a commodity (such as gold, crude oil, agricultural products) or a financial instrument. The date for settlement of futures can be a week, a month, three months, or even a year later.
Futures are usually concentrated on futures exchanges and traded on standardized contracts, but there are also some futures contracts that can be traded over the counter, known as over-the-counter contracts.
Futures is a kind of financial derivative. According to the type of spot subject matter, futures can be divided into many types:
Agricultural futures: such as cotton, soybean, wheat, corn, sugar, coffee, pork belly, rapeseed oil, natural rubber, palm oil, red wine, poultry and livestock
Metal futures: such as copper, aluminum, tin, zinc, nickel, gold, silver
Energy futures: such as crude oil, gasoline, fuel oil. Emerging varieties include temperature, carbon dioxide and sulfur dioxide emission quotas
Financial futures: such as treasury bond futures and stock index futures
The futures market first sprouted in Europe. As early as in ancient Greece and Rome, there were central trading venues, bulk barter trading, and futures trading activities.
The initial futures trading developed from spot forward trading. The first modern futures exchange was established in Chicago in 1848 and established the standard contract model in 1865.
futures trade
Investors involved in futures trading can generally be divided into two categories: speculators, who wait for opportunities to make profits by predicting price fluctuations, and hedgers, who lock in profits and costs by buying and selling futures to reduce the risk of price fluctuations caused by time.
Futures speculation
Futures speculative trading refers to the futures trading behavior for the purpose of obtaining spread returns in the futures market.
Speculators make decisions to buy or sell according to their own judgment on the trend of futures prices. if this judgment is the same as the trend of market prices, speculators can make speculative profits after closing their positions and going out; if the judgment is contrary to the trend of prices, speculators bear speculative losses after closing their positions and going out. As the purpose of speculation is to earn a profit on the price difference, speculators generally only close their positions and settle their futures contracts without physical delivery.
In addition, the leverage effect in futures is the original mechanism of futures trading, that is, margin system. The "leverage effect" not only magnifies the tradable amount of investors, but also increases the risk borne by investors many times.
Futures hedging
When spot companies use the futures market to counteract the reverse movement of prices in the spot market, this process is called hedging.
The basic practice of hedging is to buy or sell commodity futures contracts that are equal to the number of transactions in the spot market, but in the opposite direction, in order to hedge positions by selling or buying the same futures contracts at some point in the future. settle the profits or losses caused by futures trading, so as to compensate or offset the actual price risks or benefits caused by price changes in the spot market. To stabilize the profits and returns of traders at a certain level.