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