Security Futures Training - Module 2:  Futures Contracts

Introduction to Futures Contracts

 

General characteristics
Equal treatment of buys and sells
Standardized contract terms

 

Futures Markets and Clearing Organizations

 

Open-outcry
Electronic trading
Floor brokers
Floor traders
Non-fungibility across exchanges
Role of clearinghouse

• Matching trades
• Effecting settlement and payments
• Guaranteeing performance
• Facilitating deliveries

 

Trading Futures

 

Settlement

• Physical delivery
• Cash settlement

Daily price limits
Circuit breakers
Types of orders (different than those in the securities markets)

• Spread orders
• Switch orders
• Fill-or-kill orders

Volume
Open interest
Commitments of traders
Pricing of futures
Hedging

• Basis risk

Speculation
Position limits
Arbitrage
Spreading

• Intramarket spreads
• Intermarket spreads

 

Margins

 

Initial margin ("good faith deposit") Maintenance margin

• Marking to market

Clearing margins

 

Segregated Funds

 

Segregation requirements
Not covered by SIPC