what is futures markets
Financial risks have become one of the most acute problems faced by the representatives of business circles during the last decades. Ask any large holder of securities, afraid if he fluctuations in the exchange rates of the shares and the rates on the bonds. Ask the borrowers and their creditors, what effect can produce on their financial position changes in interest rates. Imagine, what could be the loss of the exporter or the importer of a large consignment of the goods in the event of adverse leap currency exchange rates.
what is futures markets Not to ask such questions in our time can afford to do that owners of small provincial companies that do not concern themselves about the output of the local market and prepared with local stocks of raw material, the volume of own capital and the size of a personal safe for the storage of all available the cash.
The same, for whom the picture painted here is not a dream, but who at the same time conscious of the financial vulnerability in the face of numerous economic problems, it is important to resist their assault, occupying an active position. A good example of this active position is to enter the futures market for trading financial assets.
what is futures markets, futures Trading, as a method of protection against financial risks, is a special type of investment, involving speculation on the fluctuations in commodity prices. The phenomenal growth of the futures market was primarily due to the fact that he gives effective weapon and no less efficient means to manage the significant financial risk. Since the primary purpose of futures trading is speculation, the profit of the trader depends on how cheap it will be able to buy a futures contract and how much more it will be able to sell it afterwards.
Real goods, declared in the contract, often has no relation to the concluded transaction. This may be literally everything: from primary agricultural products (grain, cotton) and mineral resources (oil, iron, gold) to produced on the basis of their products (bread, clothing, gasoline, cars, jewelry) and the foreign exchange funds in the form of shares, bonds and other securities.
Since the futures contract is for the supply of goods in the future (English future - the future), purchasing it does not mean an unconditional obligation to purchase the product. Futures sold as freely as are bought, while at the same time the number of traded contracts is limited only by capacities and abilities of the trader to find buyers who are ready to continue the financial chain. Large companies, banks, as well as experienced traders and investors are able to trade hundreds of futures at the same time.
The only limitation is the so-called futures contract expires, until the occurrence of which the buyer of a futures contract can sell it and thus relieving themselves from liabilities assumed, and the seller of a futures contract is to perform a reverse transaction. Intraday traders can buy and sell only that the acquired contracts with intervals of not just in a few hours, but in a few minutes. Other traders prefer to less fulminant of the transaction, but in any case, the choice of one or the other of the futures contract depends on the tactical and the strategic aims of a particular trader.
what is futures markets the Majority of traders are trading more liquid contracts, period of execution of which will expire in the near future. Such contracts are sold at more realistic prices, are the least susceptible to all sorts of variations. In contrast to the distant contracts are selected, if there are serious reasons for considering the growth of prices on the product for a long period of time. For example, when purchase contracts for grain June 1, on the basis of specified in the specification of the dates of expiration (March, may, July, September, and December), you can select the July futures, if you rely on the growth of prices until the middle of July, or the September futures contracts, if there is confidence that the price growth will continue until the end of August.
Despite the relatively-free conditions of purchase-sale, the content of futures contracts strictly standardised exchange and provides a clear indication of not only the number of the offered goods, but also its quality. For example, in the contract for the supply of gold (GC) or other precious metals specifies the number of Troy ounces and the sample, and the futures contract for the supply of pork carcasses (PB) includes a reference not only their total weight, and size.
Traders operating in the futures market, it is accepted to divide into two groups depending on the purpose exercised their exchange activities.
Manufacturers that have emerged on the futures market with the purpose of insurance of production risks (oil refineries, coal companies, farmer agriculture), as well as various financial institutions wishing to minimize the effects of fluctuations of currency exchange rates (banks, pension funds, insurance companies), called õåäæåðàìè. If, according to the forecasts of financial analysts, there is a probability of falling prices of any goods by the time of his the proposed sale, the design of the futures contract will advance to gain advantageous price and cover the losses at the expense of obtained from sale of future profits in the subsequent purchase of the contract at a lower cost in the case of a real fall in prices.
Independent traders and investors, usually not associated with any goods, or with the risk of price fluctuations on them, have received the name speculators. Their only aim is to make profit through the acquisition of promising futures on the product, showing the tendency of growth of prices, and sales data futures before the price specified in them the product will fall.
what is futures markets
The occurrence of futures trade is connected with refusal from the immediate delivery of the goods in favour of the contracts, where in addition to the quantity and value of goods specifying a defined period of validity of the contract. Before the great shift, producers and consumers of goods equally dependent on fluctuations of market prices: decline of prices brought losses first, the growth of prices meant financial difficulties for the second.
The first way to protect yourself from possible financial losses of the American farmers, who lived in the Chicago area in the middle of the 19th century. Thanks to its convenient geographical location and availability of both ground, and water types of transport, the major port on the shores of the Great lakes became the place of the organization in 1848, the first on the territory of the United States commodity exchange, which was called the Chicago Board of trade. Created by 82 merchants in order to facilitate the conclusion of transactions, it has become the place where we made the first futures contract. At first preliminary the transaction occurred on the supply has not grown, but nevertheless real grain. Only after 1851 appeared and became widespread practice to conclude fixed-term contracts, for which immediate delivery was delayed until a certain date in the future.
what is futures markets. The very name of «futures» was established in 1865., when marked by the transition from a free, individually determined by the form of the contract to a standardized, with an obligatory indication of the quantity and quality of the goods, as well as the place and time of delivery.
With the growth of the financial market a small range of products, which could offer farms, has expanded to several hundreds of names, among which you can find precious metals, raw materials, products of vegetable and animal origin, as well as all the modern financial instruments, including the NASDAQ, Dow Jones, S&P 500.
