Security Futures Training - Module 2: Futures Contracts

Module 2: Futures Contracts is intended primarily for securities professionals as an introduction to the basic concepts and terminology of futures. In general, FINRA will require that members administer the content of Module 2 to securities registrants, although firms employing dually-licensed persons (i.e., persons registered with a broker/dealer and an futures commission merchant or introducing broker), may not need to administer Module 2 to such persons.

Content Outline

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