The original purpose of futures contracts was to provide a facility for people to hedge their price risk.

Size: px
Start display at page:

Download "The original purpose of futures contracts was to provide a facility for people to hedge their price risk."

Transcription

1 Futures Bas sicss Propex Derivatives Pty Ltd 2012 The information in this document and related documents and communication is intended for educational purposes only and does not constitute advice. Redistribution of the material without prior permission is prohibited. Level 4, 299 Elizabeth Street. Sydney

2 Futures Basics What Are Futures? To many people futures trading is considered a risky endeavour and only for the brave hearted amongst us. This is untrue. Futures trading can be a very rewarding form of investment, but only when approached with the right attitude and strategy. The legal definition of a futures contract is a legally binding agreement to buy or sell a specified amount of a commodity or financial instrument at a fixed price sometime in the future. The original purpose of futures contracts was to provide a facility for people to hedge their price risk. Example Through the Sydney Futures Exchange you can buy or sell futures contracts based on the ASX200 Index ( the SPI ), the top 200 stocks in Australia. At no point are you buying or selling the actual stocks, rather you are entering into an agreement to buy or sell a dollar value based on the ASX200 index value. The contract represents $25 multiplied by the quoted index value. In Australia, the SPI is a popular market for day trading given a reasonable tick value ($25) and intraday volatility. Futures are used by fund managers and private individuals to hedge share portfolios. However, the majority of private individuals using this market are short term traders. Many readers will be familiar with the concept of going long. Going long simply means to have purchased the asset with the view of that asset increasing in price. When you buy shares you are said to be long shares. That s a straightforward concept. The concept of going short creates some confusion amongst new traders, however the concept is not that difficult. Gong short simply means to have sold the contract before you buy it with a view on making a profit from a fall in the price. Since futures contracts do not involve immediate delivery or settlement of the instrument, it is possible to sell the contract without first owning it. A futures contract is just an agreement, not a physical asset. So selling the contract (going short) is just an agreement to sell the underlying asset at a certain price. Buying back the short contract or selling the long contract to take a profit/loss is referred to as closing the position. What futures contracts are available? Pretty much any commonly traded commodity or financial asset will most likely have a corresponding futures contract listed somewhere in the world. Propex Derivatives Pty Ltd

3 There are futures contracts on financial assets such as individual stocks, stock markett indices and short and long term interest rates. There are futures on physical commodities such as wool, wheat, gold, soybeans, lead and oil. There are even futures contracts on more obscure things such as electricity supplies, unleadedd petrol andd weather temperatures in certain cities. The list really does go on and on. A futures exchange will list certain futures contracts based on demand from the traders and investors. Most futures exchanges started out offering commodity based contracts for producers to hedgee price exposure. Today, hedging activity is just a small fraction of the volume of trades. Instead, speculators dominate most markets. Elements of a Futures Contract Underlying Asset In the above example, the underlying asset (or just underlying ) was the ASX200 Index. Each tick movement in the ASX200 is worth $25. Each futures contract is different. For commodities futures, thee contract will be based on a certain physical volume or a specific s grade. Gold futures, for example, aree based on 100 Troy ounces per contract at a grade of not less than fineness. As mentioned, each contract is different.. Naturally, the quantity and any particular grading of the underlying is an important consideration in hedging any asset. Delivery Month Futures contracts have a finite life. All futures contracts are based on a specific month of delivery. Contracts on the e mini S&P, for example, are listed for March, June, September and December for any year. An exchangee will make available a number of f delivery month contracts depending on demand and these will each have theirr own prices. Monthly Crude Oil Prices as at 16 th December Propex Derivatives Pty Ltd com 3

4 The concept of delivery can be a little misleading, as some futures contracts are not deliverable (see Settlement Type). For those contracts that are deliverable, such delivery rarely takes place these days. Instead, most traders, investors and even hedgers will close out the futures position before it comes time to deliver, thereby relinquishing any obligations to make or take delivery. When trading a deliverable contract that is nearing expiry, ask your broker when is the best time to close your position or roll it over to the next trading month. Settlement Type (Cash or Physical) Some contracts require physical delivery of the underlying. Gold for example is deliverable in this sense. Most financial futures contracts however are cash settled, meaning only an exchange of funds takes place. Naturally, it would be very hard to deliver or take delivery of one ASX200 index. Whether a contract is cash settled or deliverable should not make too much difference to anyone who closes the position before the delivery date. Margin When buying or selling futures contracts, it is not necessary to pay the full price for that contract. Rather, futures contracts require only a small percentage called a margin. An initial margin is like a deposit the trader pays when initiating a position. These funds must be in your account before you are allowed to place a trade. The margin is then held by the clearing house of the exchange and is returned when the position is closed. Typically an initial margin works out to be a few per cent of the total contract value. Another type of margin is a variation margin. At the end of each trading day, the clearing house from any particular futures exchange will settle all profits and losses on all open positions and credit/debit all trading accounts accordingly. Note that the positions are not closed. It is just the profit or loss that is settled. For those readers that have traded equity options, this type of margin is very similar. Exchange Listing Trading of futures contracts is conducted on a futures exchange such as the Australian Securities Exchange, the Chicago Board of Trade or Eurex. Some exchanges offer electronic trading only. Others offer a pit or floor trading session. Pit trading is also called open outcry. This is the traditional system of trading futures. The contracts are traded by brokers and traders face to face in the exchange itself (the movie Trading Places has a good example). In recent years, there has been a push towards electronic trading. Some exchanges such as Eurex and Australia s ASX are completely electronic. That is there is no open outcry trading floor. Some exchanges, mostly American ones, persist with open outcry trading and some offer side by side trading simultaneous open outcry and electronic sessions. While it has made a lot of floor traders obsolete, electronic trading is meant to offer a more efficient price mechanism and thereby offer a fairer system to all participants. Propex Derivatives Pty Ltd

5 Whether a market is electronic or pit traded is not really an important point right now. You do need to know on what exchange your markets are trading. Knowledge of different markets comes with time, but these things are also pretty easy to Google. Price Last but not least there is the price you can trade the contract. For any one futures contract, the above features are fixed and cannot be changed in the open market place. The price for any futures contract, however, is determined by supply and demand. The price is the only variable. The Mechanics Of Futures Trading Futures contracts, like shares, are traded through a broker. You have to use a futures broker, not a stock broker. Through any futures broker, you can trade any registered futures contract in the world whether it is gold in New York or share futures in London or the Nikkei from Singapore. For high frequency day trading, it is very important to have a good internet connection and an online trading platform. Thankfully, gone are the days of having to use the phone to call a broker to day trade. Many brokers these days offer some sort of online connectivity, but it s important to note not that all are the same. Later in this course, we will cover this topic in a little more detail. Trading Examples Here we are going to learn two strategies: going long and going short. Going Long If you have traded or invested in anything before, you are already familiar with the concept of going long. This is where you buy a certain asset with the view of it increasing in price. If and when the price does increase, you can close (sell) the position at a profit. With futures contracts, you are not buying anything physical. You are essentially entering into an agreement to buy a certain asset on a certain date in the future. Today in the open marketplace you can agree to buy a futures contract at what the market deems to be the price. At some time in the future, perhaps later in the day, you can close out of the position by selling the contract back in the market. Let s look at the ASX200 ( the SPI ) futures as traded on the Australian Securities Exchange (abbreviated to ASX). In the below chart, the June SPI is trading at 4139pts. As previously mentioned, each contract is based on a dollar value of $25 times the index value. Propex Derivatives Pty Ltd

6 Based on your analysis, suppose you think the price of the index was goingg to rise over the next hour or so. Here you would buy or go long the contract. The T processs is the same as buying shares or exchange traded funds (ETFs) except of course you usee a futures broker not a stock broker. So let s say you have bought one contract at Time passess and an hour later, the contract is trading at If you were too sell at this price, the trade would show a profit of 10pts (excluding commissions). In dollar terms, this translates to t $250 profit per contract ($25 per point x 10pts). In this trade, you went long the SPI and it showed a nice little profit. Going Short Remember with futures, you are not actually buying the physical commodity. You are entering into an agreement based on what the market thinks that commodity will be worth at some time on the future. Any futures trade is just an agreement. By going long in the examplee above, youu entered into an agreement to buy the June SPI contract at An hour later you sold that agreement back into the market at 4190, resulting in an overall profit of 10pts. If this is only an agreement, why can t you enter an agreementt to sell instead of buy, thereby making money from a fall in the market? Well you can. This is called going short and in this case it is the opposite of goingg long. Let s use an example of a falling market to illustrate this. Propex Derivatives Pty Ltd com 6

7 Suppose you read somewheree that the Gold price is due for a drop. d In thiss instance, you could sell a futures contract in gold and profit from any fall in the price of Gold. This is i the point where some people get stuck. How can you sell something you do not own? Remember, futures contracts are just agreements on price. There is no actual ownership of the commodity in question. So by selling a contract or going short, you have entered into a contract to sell at the current price. At any time before the expiration of the contract, you can buy it back in the open marketplace by buying one contract at the prevailing price. The chart below shows the price for April Gold futures. Suppose you go short by selling one contract at $1760. Gold futures trade on the COMEX division of the New York Mercantile Exchange. Each contract is based on 100 ounces of Gold and therefore every move m of $1.00 is worth $100 per contract to the buyer or seller. Suppose later in the day, August Gold futures were trading at $1,745. $ To close a short position, you would enter a buy transaction. Selling one contract earlier inn the day and buying it back later would leave you withh no position, or flat. So let s say you didd close the position at $ $1,745, this would result in a profit of $15 per contract or $1,500, as each dollar movement in the price of Gold is worth $100 in the futures contract. This is going short. It s a little confusingg the first time you come across it,, but it becomes second nature in no time. Contact details: Guy Bower Head of Training and Development Propex Derivatives Pty Ltd, Sydney Australia Onlinee Training: Training.comm In house Trading: Propex Derivatives Pty Ltd com 7

Web Resources. Acknowledgements

Web Resources. Acknowledgements Web Resources Daniels Trading offer comprehensive, reliable and customer-focused commodity futures brokerage services to address all trading preferences. Their website is also a great place for educational

More information

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp.

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp. Futures Investment Series S P E C I A L R E P O R T No. 2 The Mechanics of the Commodity Futures Markets What They Are and How They Function Mount Lucas Management Corp. The Mechanics of the Commodity

More information

Futures Contract Introduction

Futures Contract Introduction Futures Contract Introduction 1 The first futures exchange market was the Dojima Rice exchange in Japan in the 1730s, to meet the needs of samurai who being paid in rice and after a series of bad harvests

More information

CommSeC CFDS: IntroDuCtIon to CommoDItIeS

CommSeC CFDS: IntroDuCtIon to CommoDItIeS CommSec CFDs: Introduction to Commodities We re here to help To find out more, call us on 1300 307 853, from 8am Monday to 6am Saturday, email us at cfds@commsec.com.au or visit our website at commsec.com.au.

More information

Futures. Leverage for sophisticated traders

Futures. Leverage for sophisticated traders Futures Leverage for sophisticated traders FSR TERMINOLOGY CHANGES ASX has changed its business framework for trading, clearing and settlement. As a result there have been changes to the terminology used

More information

Reading: Chapter 19. 7. Swaps

Reading: Chapter 19. 7. Swaps Reading: Chapter 19 Chap. 19. Commodities and Financial Futures 1. The mechanics of investing in futures 2. Leverage 3. Hedging 4. The selection of commodity futures contracts 5. The pricing of futures

More information

Manual for SOA Exam FM/CAS Exam 2.

Manual for SOA Exam FM/CAS Exam 2. Manual for SOA Exam FM/CAS Exam 2. Chapter 7. Derivative markets. c 2009. Miguel A. Arcones. All rights reserved. Extract from: Arcones Manual for the SOA Exam FM/CAS Exam 2, Financial Mathematics. Fall

More information

Chapter Five: Risk Management and Commodity Markets

Chapter Five: Risk Management and Commodity Markets Chapter Five: Risk Management and Commodity Markets All business firms face risk; agricultural businesses more than most. Temperature and precipitation are largely beyond anyone s control, yet these factors

More information

FUTURES Helping the Share Trader Understand. By Paul Ash Educator & Past Futures Broker TCT Australia Pty Ltd Phone 0414 836 063

FUTURES Helping the Share Trader Understand. By Paul Ash Educator & Past Futures Broker TCT Australia Pty Ltd Phone 0414 836 063 FUTURES Helping the Share Trader Understand By Paul Ash Educator & Past Futures Broker TCT Australia Pty Ltd Phone 0414 836 063 The information is provided for training purposes only and is not a substitute

More information

CME Group 2012 Commodities Trading Challenge. Competition Rules and Procedures

CME Group 2012 Commodities Trading Challenge. Competition Rules and Procedures Competition Rules and Procedures CME Group with assistance from CQG and the University of Houston, is sponsoring a commodities trading competition among colleges and universities. Students will compete

More information

Understanding Options Trading. ASX. The Australian Sharemarket

Understanding Options Trading. ASX. The Australian Sharemarket Understanding Options Trading ASX. The Australian Sharemarket Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain

More information

Currency Derivatives Guide

Currency Derivatives Guide Currency Derivatives Guide What are Futures? In finance, a futures contract (futures) is a standardised contract between two parties to buy or sell a specified asset of standardised quantity and quality

More information

Introduction to Index Futures and Options

Introduction to Index Futures and Options Introduction to Index Futures and Options Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice

More information

Mechanics of the Futures Market. Andrew Wilkinson

Mechanics of the Futures Market. Andrew Wilkinson Mechanics of the Futures Market Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading

More information

MARGIN FOREIGN EXCHANGE AND FOREIGN EXCHANGE OPTIONS

MARGIN FOREIGN EXCHANGE AND FOREIGN EXCHANGE OPTIONS CLIENT SERVICE AGREEMENT Halifax New Zealand Limited Client Service Agreement Product Disclosure Statement for MARGIN FOREIGN EXCHANGE AND FOREIGN EXCHANGE OPTIONS Halifax New Zealand Limited Financial

More information

Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT

Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT Introduction to Equity Derivatives on Nasdaq Dubai NOT TO BE DISTRIUTED TO THIRD PARTIES WITHOUT NASDAQ DUBAI S WRITTEN CONSENT CONTENTS An Exchange with Credentials (Page 3) Introduction to Derivatives»

More information

Module 5. Attitude to risk. In this module we take a look at risk management and its importance. TradeSense Australia, June 2011, Edition 10

Module 5. Attitude to risk. In this module we take a look at risk management and its importance. TradeSense Australia, June 2011, Edition 10 Attitude to risk Module 5 Attitude to risk In this module we take a look at risk management and its importance. TradeSense Australia, June 2011, Edition 10 Attitude to risk In the previous module we looked

More information

Taxation treatment of exchange traded futures

Taxation treatment of exchange traded futures Taxation treatment of exchange traded futures 20 May 2010 Alison Noble, Principal, Deloitte Touche Tohmatsu Ltd Christopher Neil, Analyst, Deloitte Touche Tohmatsu Ltd The views in this document are those

More information

Understanding Margins

Understanding Margins Understanding Margins Frequently asked questions on margins as applicable for transactions on Cash and Derivatives segments of NSE and BSE Jointly published by National Stock Exchange of India Limited

More information

How to Trade Almost Any Asset in the World from a Single Account Using CFDs

How to Trade Almost Any Asset in the World from a Single Account Using CFDs How to Trade Almost Any Asset in the World from a Single Account Using CFDs How to Trade Almost Any Asset in the World from a Single Account Using CFDs Shae Russell, Editor INTRODUCTION TO TRADING CFDS

More information

CHAPTER 16. Futures Contracts

CHAPTER 16. Futures Contracts CHAPTER 16 Futures Contracts Trading in futures contracts adds a time dimension to commodity markets. A futures contract separates the date of the agreement - when a delivery price is specified - from

More information

Understanding Options Trading. ASX. The Australian Sharemarket

Understanding Options Trading. ASX. The Australian Sharemarket Understanding Options Trading ASX. The Australian Sharemarket Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain

More information

RISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS

RISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS RISK DISCLOSURE STATEMENT FOR SECURITY FUTURES CONTRACTS This disclosure statement discusses the characteristics and risks of standardized security futures contracts traded on regulated U.S. exchanges.

More information

Risk Disclosure Statement for CFDs on Securities, Indices and Futures

Risk Disclosure Statement for CFDs on Securities, Indices and Futures Risk Disclosure on Securities, Indices and Futures RISK DISCLOSURE STATEMENT FOR CFDS ON SECURITIES, INDICES AND FUTURES This disclosure statement discusses the characteristics and risks of contracts for

More information

Understanding Margins. Frequently asked questions on margins as applicable for transactions on Cash and Derivatives segments of NSE and BSE

Understanding Margins. Frequently asked questions on margins as applicable for transactions on Cash and Derivatives segments of NSE and BSE Understanding Margins Frequently asked questions on margins as applicable for transactions on Cash and Derivatives segments of NSE and BSE Jointly published by National Stock Exchange of India Limited

More information

Brief Overview of Futures and Options in Risk Management

Brief Overview of Futures and Options in Risk Management Brief Overview of Futures and Options in Risk Management Basic Definitions: Derivative Security: A security whose value depends on the worth of other basic underlying variables. E.G. Futures, Options,

More information

Introduction to Futures Contracts

Introduction to Futures Contracts Introduction to Futures Contracts September 2010 PREPARED BY Eric Przybylinski Research Analyst Gregory J. Leonberger, FSA Director of Research Abstract Futures contracts are widely utilized throughout

More information

Introduction to Metals Futures. Presented by Pete Mulmat and Dan Gramza September 25th, 2014

Introduction to Metals Futures. Presented by Pete Mulmat and Dan Gramza September 25th, 2014 Introduction to Metals Futures Presented by Pete Mulmat and Dan Gramza September 25th, 2014 Disclaimer Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged

More information

Hedging Strategies Using Futures. Chapter 3

Hedging Strategies Using Futures. Chapter 3 Hedging Strategies Using Futures Chapter 3 Fundamentals of Futures and Options Markets, 8th Ed, Ch3, Copyright John C. Hull 2013 1 The Nature of Derivatives A derivative is an instrument whose value depends

More information

ATTITUDE TO RISK. In this module we take a look at risk management and its importance. MODULE 5 INTRODUCTION PROGRAMME NOVEMBER 2012, EDITION 18

ATTITUDE TO RISK. In this module we take a look at risk management and its importance. MODULE 5 INTRODUCTION PROGRAMME NOVEMBER 2012, EDITION 18 INTRODUCTION PROGRAMME MODULE 5 ATTITUDE TO RISK In this module we take a look at risk management and its importance. NOVEMBER 2012, EDITION 18 CONTENTS 3 6 RISK MANAGEMENT 2 In the previous module we

More information

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s

THE UNDAMENTALS AND ECHNIQUES RADING OMMODITY PREADS. c s c s THE UNDAMENTALS AND ECHNIQUES OF RADING OMMODITY PREADS The purpose of this booklet is to give you a better understanding of various aspects of spread trading in the futures market. Center for Futures

More information

Industry Snapshot: Hedging with E-mini S&P 500 Futures

Industry Snapshot: Hedging with E-mini S&P 500 Futures Industry Snapshot: Hedging with E-mini S&P 500 Futures DECEMBER 2013 THE MARKET IS OUT TO GET YOU FIGHT BACK! HEDGING WITH E-MINI S&P 500 FUTURES Every investor has seen it happen: a carefully selected

More information

An Introduction to trading CitiFirst Commodity MINIs OPPORTUNITY. www.citifirst.com.au/minis

An Introduction to trading CitiFirst Commodity MINIs OPPORTUNITY. www.citifirst.com.au/minis OPPORTUNITY www.citifirst.com.au/minis MINIS INSTALMENTS SELF FUNDING INSTALMENTS TURBOS TRADING WARRANTS An Introduction to trading CitiFirst Commodity MINIs For more information and to subscribe to our

More information

PRODUCT DISCLOSURE STATEMENT FOR THE ISSUE OF ASX CFDs BY MORRISON SECURITIES PTY LIMITED

PRODUCT DISCLOSURE STATEMENT FOR THE ISSUE OF ASX CFDs BY MORRISON SECURITIES PTY LIMITED PRODUCT DISCLOSURE STATEMENT FOR THE ISSUE OF ASX CFDs BY MORRISON SECURITIES PTY LIMITED PART 1 This document is part of a Product Disclosure Statement and is Part 1. The other document which makes up

More information

How CFD Trading Works?

How CFD Trading Works? What are CFD s In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference

More information

Noble DraKoln. metals products Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities.

Noble DraKoln. metals products Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities. metals products Gold Futures vs. Gold ETFs: Understanding the Differences and Opportunities. Noble DraKoln Founder of Speculator Academy and author of Winning the Trading Game and Trade Like a Pro cmegroup.com/metals

More information

Futures Basics & Essentials: The Beginners Guide to Trading Gold Futures INDEPENDENT. OBJECTIVE. RELIABLE.

Futures Basics & Essentials: The Beginners Guide to Trading Gold Futures INDEPENDENT. OBJECTIVE. RELIABLE. INDEPENDENT. OBJECTIVE. RELIABLE. About the ebook Creator Drew Rathgeber is a senior market strategist at Daniels Trading. He has been heavily involved in numerous facets of the Gold community for nearly

More information

EXCHANGE TRADED OPTIONS PRODUCT DISCLOSURE STATEMENT INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL 245 574

EXCHANGE TRADED OPTIONS PRODUCT DISCLOSURE STATEMENT INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL 245 574 EXCHANGE TRADED OPTIONS PRODUCT DISCLOSURE STATEMENT INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL 245 574 Date of Issue: 12 February 2014 INDEX 1. GENERAL INTRODUCTION 4 1.1 Important Information 4 1.2

More information

Exchange Traded Options Product Disclosure Statement (PDS)

Exchange Traded Options Product Disclosure Statement (PDS) Bendigo Invest Direct Exchange Traded Options Product Disclosure Statement (PDS) 1 December 2015 A service provided by CMC Markets Stockbroking Limited AFSL No. 246381 and ABN 69 081 002 851 Table of Contents

More information

Taxation Treatment of Futures

Taxation Treatment of Futures Taxation Treatment of Futures October 2003 Any queries regarding this paper can be directed to Patrick Broughan, Taxation Partner Ernst & Young, Melbourne on (03) 9288 8830 IMPORTANT DISCLAIMER Ernst &

More information

The Futures Markets Canadian Securities Institute 1

The Futures Markets Canadian Securities Institute 1 The Futures Markets Canadian Securities Institute 1 Introduction This chapter provides an introduction to futures markets where exchange-traded, forward-based derivatives are traded. Forward-based derivatives

More information

CMC Markets Stockbroking Limited Exchange Traded Options Product Disclosure Statement (PDS)

CMC Markets Stockbroking Limited Exchange Traded Options Product Disclosure Statement (PDS) CMC Markets Stockbroking Limited Exchange Traded Options Product Disclosure Statement (PDS) 16 May 2011 AFSL No. 246381 and ABN 69 081 002 851 Table of contents Table of contents Part 1 01 General introduction

More information

Online Share Trading Currency Futures

Online Share Trading Currency Futures Online Share Trading Currency Futures Wealth warning: Trading Currency Futures can offer significant returns BUT also subject you to significant losses if the market moves against your position. You may,

More information

Online Share Trading Currency Futures

Online Share Trading Currency Futures Online Share Trading Currency Futures pic Currency Futures Introduction Currency futures contracts can be hard-working additions to any investor s or trader s portfolio. They provide a way to hedge the

More information

Index options. Module 9

Index options. Module 9 Course #: Title Module 9 Index options Index options... 1 Topic 1: Why trade index options?... 3 Trade the direction of the index... 3 Leveraged exposure... 3 Protect a share portfolio... 4 Topic 2: How

More information

Milk Hedging Strategies Utilizing Futures & Options

Milk Hedging Strategies Utilizing Futures & Options Milk Hedging Strategies Utilizing Futures & Options A Basic Understanding of hedging and forward pricing scenarios Utilizing both futures & options traded at the Chicago Mercantile Exchange focusing on

More information

ebridge Online Trading Facility

ebridge Online Trading Facility Futures Contracts For Difference Product disclosure Statement ebridge Online Trading Facility Issuer: StoneBridge Securities Limited ABN 92 067 161 755 Australian Financial Services Licence No. 238148

More information

BEAR: A person who believes that the price of a particular security or the market as a whole will go lower.

BEAR: A person who believes that the price of a particular security or the market as a whole will go lower. Trading Terms ARBITRAGE: The simultaneous purchase and sale of identical or equivalent financial instruments in order to benefit from a discrepancy in their price relationship. More generally, it refers

More information

Section III Advanced Pricing Tools

Section III Advanced Pricing Tools Section III Learning objectives The appeal of options Puts vs. calls Understanding premiums Recognizing if an option is in the money, at the money or out of the money Key terms Call option: The right,

More information

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk

Assumptions: No transaction cost, same rate for borrowing/lending, no default/counterparty risk Derivatives Why? Allow easier methods to short sell a stock without a broker lending it. Facilitates hedging easily Allows the ability to take long/short position on less available commodities (Rice, Cotton,

More information

INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System

INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System INTRODUCTION TO COTTON FUTURES Blake K. Bennett Extension Economist/Management Texas Cooperative Extension, The Texas A&M University System Introduction For well over a century, industry representatives

More information

MODULE 4 MODULE 4 INTRODUCTION PROGRAMME LEVERAGE AND MARGIN

MODULE 4 MODULE 4 INTRODUCTION PROGRAMME LEVERAGE AND MARGIN INTRODUCTION PROGRAMME MODULE 4 LEVERAGE AND MARGIN This module explains leverage and gearing and compares CFDs with non-geared investments. Additionally, there are a number of worked examples of how our

More information

optionsxpress Australia Pty Limited Exchange Traded Options

optionsxpress Australia Pty Limited Exchange Traded Options Part 1 Incorporating Part 2 - Schedule of Fees and Costs Issued by: ABN: 11 085 258 822 Australian Financial Services Licence No. 246743 Address: Unit 5, 4 Skyline Place Frenchs Forest NSW 2086 Phone:

More information

Commodity Futures and Options

Commodity Futures and Options Understanding Commodity Futures and Options for Producers of Livestock and Livestock Products CIS 1100 The Authors Larry D. Makus, C. Wilson Gray and Neil R. Rimbey* Introduction Risk associated with an

More information

Content. Executive Summary. What is a CFD? Who are the participants? Advantages of trading CFDs. Features and benefits of CFDs. Reasons for using CFDs

Content. Executive Summary. What is a CFD? Who are the participants? Advantages of trading CFDs. Features and benefits of CFDs. Reasons for using CFDs Corporate Retail Contracts and Investment for Difference Banking Content Executive Summary What is a CFD? Who are the participants? Advantages of trading CFDs Features and benefits of CFDs Reasons for

More information

General Information Series

General Information Series General Information Series 1 Agricultural Futures for the Beginner Describes various applications of futures contracts for those new to futures markets. Different trading examples for hedgers and speculators

More information

Chapter 1 - Introduction

Chapter 1 - Introduction Chapter 1 - Introduction Derivative securities Futures contracts Forward contracts Futures and forward markets Comparison of futures and forward contracts Options contracts Options markets Comparison of

More information

BUSM 411: Derivatives and Fixed Income

BUSM 411: Derivatives and Fixed Income BUSM 411: Derivatives and Fixed Income 2. Forwards, Options, and Hedging This lecture covers the basic derivatives contracts: forwards (and futures), and call and put options. These basic contracts are

More information

General Risk Disclosure

General Risk Disclosure General Risk Disclosure Colmex Pro Ltd (hereinafter called the Company ) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (license number 123/10). This notice is provided

More information

Forward and Futures Markets. Class Objectives. Class Objectives

Forward and Futures Markets. Class Objectives. Class Objectives Forward and Futures Markets Peter Ritchken Kenneth Walter Haber Professor of Finance Case Western Reserve University Cleveland, Ohio, 44106 Peter Ritchken Forwards and Futures 1 Class Objectives Buying

More information

CBOT Precious Metals AN INTRODUCTION TO TRADING CBOT ELECTRONIC GOLD AND SILVER

CBOT Precious Metals AN INTRODUCTION TO TRADING CBOT ELECTRONIC GOLD AND SILVER CBOT Precious Metals AN INTRODUCTION TO TRADING CBOT ELECTRONIC GOLD AND SILVER Introduction The Chicago Board of Trade offers electronic trading on two of the world s most actively traded precious metals

More information

Delivery options. Originally, delivery options refer to the options available to the seller of a bond

Delivery options. Originally, delivery options refer to the options available to the seller of a bond Delivery options Originally, delivery options refer to the options available to the seller of a bond futures contract, including the quality option, the timing option, and the wild card option. Delivery

More information

Short Selling Australian Stocks

Short Selling Australian Stocks Short Selling Australian Stocks What is Short Selling? The best way to explain short selling is to show the difference between going long and going short. Going Long and Making a Profit To go long means

More information

jbwere exchange traded options

jbwere exchange traded options jbwere exchange traded options Product Disclosure Statement (PDS) Preparation date: 25 February 2014 Issued by: WealthHub Securities Limited This PDS was prepared by: WealthHub Securities Limited, ABN

More information

DERIVATIVES Presented by Sade Odunaiya Partner, Risk Management Alliance Consulting DERIVATIVES Introduction Forward Rate Agreements FRA Swaps Futures Options Summary INTRODUCTION Financial Market Participants

More information

FUTURES PRODUCT DISCLOSURE STATEMENT. INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL Number: 245 574

FUTURES PRODUCT DISCLOSURE STATEMENT. INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL Number: 245 574 FUTURES PRODUCT DISCLOSURE STATEMENT INTERACTIVE BROKERS LLC ARBN 091 191 141 AFSL Number: 245 574 Date of Issue: 5 February 2015 1 INDEX 1. INTRODUCTION...3 1.1 Important information...3 1.2 Purpose of

More information

CommSeC CFDS: IntroDuCtIon to FX

CommSeC CFDS: IntroDuCtIon to FX CommSec CFDs: Introduction to FX Important Information This brochure has been prepared without taking account of the objectives, financial and taxation situation or needs of any particular individual.

More information

1. HOW DOES FOREIGN EXCHANGE TRADING WORK?

1. HOW DOES FOREIGN EXCHANGE TRADING WORK? XV. Important additional information on forex transactions / risks associated with foreign exchange transactions (also in the context of forward exchange transactions) The following information is given

More information

First Prudential Markets Pty Ltd trading as FP Markets (ABN 16 112 600 281, AFS Licence No. 286354).

First Prudential Markets Pty Ltd trading as FP Markets (ABN 16 112 600 281, AFS Licence No. 286354). DISCLAIMER This education material does not constitute financial product advice and has been prepared without taking into account your personal objectives, financial situation or needs. You should consider

More information

EXCHANGE TRADED OPTIONS

EXCHANGE TRADED OPTIONS EXCHANGE TRADED OPTIONS PRODUCT DISCLOSURE STATEMENT (PDS) 11 JULY 2014 CONTENTS Purpose of a PDS 2 About E TRADE 2 Part One: General information 3 1. What products does this PDS cover? 3 2. Overview of

More information

Understanding Options Trading

Understanding Options Trading Understanding Options Trading Disclaimer of Liability Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian

More information

Introduction to Futures Markets

Introduction to Futures Markets Agricultural Commodity Marketing: Futures, Options, Insurance Introduction to Futures Markets By: Dillon M. Feuz Utah State University Funding and Support Provided by: Fact Sheets Definition of Marketing

More information

Courtney Capital Management Pty Ltd 2008/015963/07 Authorised Financial Services Provider FSP nr 43057 Derivatives Member of the JSE Member code CCBM

Courtney Capital Management Pty Ltd 2008/015963/07 Authorised Financial Services Provider FSP nr 43057 Derivatives Member of the JSE Member code CCBM Courtney Capital Management Pty Ltd 2008/015963/07 Authorised Financial Services Provider FSP nr 43057 Derivatives Member of the JSE Member code CCBM CFD CFD s vs Equities Contracts for difference Friday

More information

In effect CFD s are financial derivatives, originally known as Traded Options, that allow traders to take advantage of prices moving up (long

In effect CFD s are financial derivatives, originally known as Traded Options, that allow traders to take advantage of prices moving up (long What are CFD s In finance, a contract for difference (CFD) is a contract between two parties, typically described as "buyer" and "seller", stipulating that the seller will pay to the buyer the difference

More information

How options are traded

How options are traded Course #: Title Module 10 How options are traded Topic 1: How options are traded... 3 Trading system... 3 Order types... 3 Combinations... 4 Trading hours... 4 Options taxation is a complex area... 5 The

More information

Vol. 8 No. 9 September 2013. By: Carley Garner OFF THE WALL. By: Wyatt PG 8. Track ntrade: Online Offers! PG 6

Vol. 8 No. 9 September 2013. By: Carley Garner OFF THE WALL. By: Wyatt PG 8. Track ntrade: Online Offers! PG 6 Vol. 8 No. 9 September 2013 By: Carley Garner PG 2 OFF THE WALL By: Wyatt PG 8 Track ntrade: Online Offers! PG 6 Crude Oil Speculators have "Options" By: Carley Garner Crude oil is perhaps the most notorious

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. Puts and calls are negotiable options issued in bearer form that allow the holder to sell (put) or buy (call) a stipulated amount of a specific security/financial asset,

More information

For example, someone paid $3.67 per share (or $367 plus fees total) for the right to buy 100 shares of IBM for $180 on or before November 18, 2011

For example, someone paid $3.67 per share (or $367 plus fees total) for the right to buy 100 shares of IBM for $180 on or before November 18, 2011 Chapter 7 - Put and Call Options written for Economics 104 Financial Economics by Prof Gary R. Evans First edition 1995, this edition September 24, 2011 Gary R. Evans This is an effort to explain puts

More information

Exchange Traded Options Product Disclosure Statement (PDS)

Exchange Traded Options Product Disclosure Statement (PDS) CMC Markets Stockbroking Limited Exchange Traded Options Product Disclosure Statement (PDS) 28 June 2013 AFSL No. 246381 and ABN 69 081 002 851 Table of Contents Table of contents Part 1 01 General introduction

More information

Module 1 Introduction Programme

Module 1 Introduction Programme Module 1 Introduction Programme CFDs: overview and trading online Introduction programme, October 2012, edition 18 1 In this module we look at the basics: what CFDs are and how they work. We look at some

More information

Frequently Asked Questions on Derivatives Trading At NSE

Frequently Asked Questions on Derivatives Trading At NSE Frequently Asked Questions on Derivatives Trading At NSE NATIONAL STOCK EXCHANGE OF INDIA LIMITED QUESTIONS & ANSWERS 1. What are derivatives? Derivatives, such as futures or options, are financial contracts

More information

Futures Trading: The Way to Go?

Futures Trading: The Way to Go? Futures Trading: The Way to Go? Terence Lee Private Client Service 25/02/11 Disclaimer The information contained in these course materials provided is the option of the Course Trainer and not Phillip Futures.

More information

IntroductIon to commsec cfds

IntroductIon to commsec cfds Introduction to CommSec CFDs Important Information This brochure has been prepared without taking account of the objectives, financial and taxation situation or needs of any particular individual. Because

More information

FINANCIALLY SETTLED, AGRICULTURAL INDEXES

FINANCIALLY SETTLED, AGRICULTURAL INDEXES FINANCIALLY SETTLED, AGRICULTURAL INDEXES N ow there s a new way to trade and manage price risk for MGEX agricultural index futures and options. From pricing advantages in options, to the ability to hedge

More information

Beginner s Guide to CFDs

Beginner s Guide to CFDs Beginner s Guide to CFDs Chapters 1.1-1.3 www.trader.ge CFDs Chapter 1.1 / A Basic Description Welcome to this chapter, which will give a brief introduction to the history of CFDs. If you are already familiar

More information

how to read the futures & options statements.

how to read the futures & options statements. how to read the futures & options statements. 2 HOW TO READ FUTURES & OPTIONS TRADING STATEMENTS This information has been prepared to help you understand your Futures and Options Trading Statement (Tax

More information

Note on New Products in F&O Segment. 2. Options Contracts with Longer Life/Tenure. 6. Exchange-traded Currency (Foreign Exchange) F&O Contracts

Note on New Products in F&O Segment. 2. Options Contracts with Longer Life/Tenure. 6. Exchange-traded Currency (Foreign Exchange) F&O Contracts Note on New Products in F&O Segment Contents 1. Mini Contracts in Equity Indices 2. Options Contracts with Longer Life/Tenure 3. Volatility Index and F&O Contracts 4. Options on Futures 5. Bond Index and

More information

Lecture 5: Forwards, Futures, and Futures Options

Lecture 5: Forwards, Futures, and Futures Options OPTIONS and FUTURES Lecture 5: Forwards, Futures, and Futures Options Philip H. Dybvig Washington University in Saint Louis Spot (cash) market Forward contract Futures contract Options on futures Copyright

More information

Definitions of Marketing Terms

Definitions of Marketing Terms E-472 RM2-32.0 11-08 Risk Management Definitions of Marketing Terms Dean McCorkle and Kevin Dhuyvetter* Cash Market Cash marketing basis the difference between a cash price and a futures price of a particular

More information

The SPX Size Advantage

The SPX Size Advantage SPX (SM) vs. SPY Advantage Series- Part II The SPX Size Advantage September 18, 2013 Presented by Marty Kearney @MartyKearney Disclosures Options involve risks and are not suitable for all investors. Prior

More information

optionsxpress Australia Pty Limited Futures

optionsxpress Australia Pty Limited Futures Futures Product Disclosure Statement Part 1 Incorporating Part 2 - Schedule of Fees and Costs Issued by: ABN: 11 085 258 822 Australian Financial Services Licence No. 246743 Address: Unit 5, 4 Skyline

More information

GOLD S SECRETS REVEALED. All You Need to Know to Trade Gold Successfully on the Financial Markets

GOLD S SECRETS REVEALED. All You Need to Know to Trade Gold Successfully on the Financial Markets GOLD S SECRETS REVEALED All You Need to Know to Trade Gold Successfully on the Financial Markets HIGH RISK INVESTMENT WARNING Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly

More information

5. Foreign Currency Futures

5. Foreign Currency Futures 5. Foreign Currency Futures Futures contracts are designed to minimize the problems arising from default risk and to facilitate liquidity in secondary dealing. In the United States, the most important

More information

Trading CFDs with Trader Dealer ABN 17 090 611 680 (AFSL NO 333297)

Trading CFDs with Trader Dealer ABN 17 090 611 680 (AFSL NO 333297) Trading CFDs with Trader Dealer ABN 17 090 611 680 (AFSL NO 333297) Pages 1. Overview 3 2. What is a CFD? 3 3. Why Trade CFDs? 3 4. How Do CFDs Work? 4 4.1 Margin 4 4.2 Commission 5 4.3 Financing 6 4.4

More information

There are two types of options - calls and puts.

There are two types of options - calls and puts. Options on Single Stock Futures Overview Options on single Stock Futures An SSF option is, very simply, an instrument that conveys to its holder the right, but not the obligation, to buy or sell an SSF

More information

THE POWER OF FOREX OPTIONS

THE POWER OF FOREX OPTIONS THE POWER OF FOREX OPTIONS TOPICS COVERED Option basics Call options Put Options Why trade options? Covered call Covered put Hedging your position using options How to repair a trading position THE POWER

More information

A Trader s Guide to Futures

A Trader s Guide to Futures CME GROUP EDUCATION A Trader s Guide to Futures Thought Leadership with a Global Perspective How the world advances cmegroup.com/education TABLE OF CONTENTS SECTION 1 What Are Futures? 4 SECTION 2 Who

More information

POLICY STATEMENT Q-22

POLICY STATEMENT Q-22 POLICY STATEMENT Q-22 DISCLOSURE DOCUMENT FOR COMMODITY FUTURES CONTRACTS, FOR OPTIONS TRADED ON A RECOGNIZED MARKET AND FOR EXCHANGE-TRADED COMMODITY FUTURES OPTIONS 1. In the case of commodity futures

More information

How to buy and sell shares

How to buy and sell shares Course 5 How to buy and sell shares Topic 1: Buying and selling shares... 3 Buying and selling shares... 3 Buying shares in a float or Initial Public Offering... 3 Buying and selling shares through a stockbroker...

More information

Currency Futures and Forward Contracts

Currency Futures and Forward Contracts Currency Futures and Forward Contracts by Geneviève Payette presented to Gregor Smith Queen s University January 28, 2005 In the past 30 years exchange rates have become much more volatile and less predictable

More information