Futures - is that? How is futures trading carried out?

Russian traders are accustomed to using such a tool as futures in their activity. RTS, MICEX and other exchanges make it possible to do this for a wide range of financial transactions. What are the specific features of the implementation of relevant trading strategies? What are futures and how do they help earn traders?

What is futures?

According to the generally accepted definition among traders, futures are financial instruments that allow the execution of fixed-term contracts for a basic asset that imply an agreement between the buyer and the seller on the price and timing of the transaction. In turn, other aspects of this asset, such as, for example, quantity, color, volume, etc., are specified in separate agreement specifications. Futures are a sufficiently universal financial instrument. They can be adapted to the most diverse areas of trading.

Futures are derivatives?

Yes, that's their kind. The term "derivative" is understood by many traders as a synonym for the phrase "derivative financial instrument", that is, one that is complementary to the classic purchase and sale transactions. Derivative and futures are a written agreement that specifies the contractual requirements for the seller and the buyer. The specificity of any derivative is that in essence it can in itself be the subject of a contract of sale. That is, a real transfer of goods from the supplier to the buyer may not be.

History of futures

In order to thoroughly study the essence of futures, it will be useful to learn how these financial instruments appeared, what are the main historical stages of their introduction into the financial turnover. Some traders believe that the mechanism of the relationship between the seller and the buyer, which today fits the definition of futures, appeared long before the instrument in question appeared on the market. As often happens in the economy, a phenomenon first appeared, and then a term characterizing it.

The market demanded innovations

One of the main types of goods has always been grain. If we talk about the period until the end of the 19th and the beginning of the 20th century, it was among the key subjects of world trade. Farmers who grew cereals, sent them to customers by land or sea. In the market of grain in the autumn time there was often an oversupply of the commodity supply - the agrarians aspired to sell the harvest as soon as possible. In turn, in the spring there could be a shortage of grain, which simply did not have time to grow, while what was not realized was still in decline in the fall, as it often had nowhere to store. The market somehow needed to settle this imbalance. So there were urgent financial instruments that allowed farmers who grow grain, as well as suppliers of any other agricultural type products, to contract with customers before the cereals could ripen or arrive at the point of sale.

Universal tool

Those agreements were called forward (from English forward - "forward"). Futures - is, you could say, the adaptation of the forward contract to the peculiarities of trading on the stock exchange. Experts associate their appearance with the established business standards of transactions, so that relevant agreements can be concluded without regard to the type of goods sold. As a result, futures trading has spread to deals in which not only grain and other agricultural products are being sold and bought, but also raw materials, metals, some ready-made foodstuffs: sugar, coffee, etc. To a relatively new one, if we talk about the history of commodity Relations, financial exchanges have adapted to the instrument.

From raw materials to stock indices

There is evidence that the first trading in futures in trading was conducted on the Dow Jones for transactions on the index with the same name. As a result, financiers received an excellent tool for insurance of financial risks - just as grain suppliers could do in the autumn. Over time, index futures have become so widespread that trading volumes on them sometimes surpass those of classic deals.

Futures on the foreign exchange market

The new financial instrument began to penetrate also into the currency markets. One of the factors of interest of traders in the use of futures was, according to some experts, the abolition of the "gold standard" in the US in 1971. Immediately after the introduction of the new norms quotes on the world currency market began to undergo strong fluctuations. Traders suggested that futures are the very tool that will help the market to go through a phase of high volatility.

Appropriate trade mechanisms were introduced, and due to the rapid growth of their popularity, experts suggested that this was exactly what the market demanded. Futures on the dollar and the ruble, as noted in a number of sources, was first concluded in April 1998. On the first trading day, the total amount of contracts exceeded 200 million rubles.

Futures in Russia

By the way, the history of Russian exchange trade dates back to the times of Peter the Great. And in the early 20th century, 87 commodity exchanges functioned in Russia according to some data. Since the late 1920s and until 1991, this institute of trade in our country did not function. But after Russia's transition to a free market has become one of the key for the country's economy.

When did the first futures deals begin in Russia? There are reports that the first precedents of the application of this financial instrument were recorded in 1996 at the St. Petersburg Stock Exchange. Began to appear the first analytical articles, which put forward the thesis of the prospects for the use of futures in Russian trading. In the 1990s, through this financial instrument, contracts on state and municipal bonds began to be executed.

Now on both major Russian exchanges futures (RTS and MICEX) are applicable. On the first there is even a specialized segment for trading with this financial instrument - FORTS. FORTS futures and options are available (another popular way to enter into contracts). It will be useful, by the way, to consider their differences.

What is the difference between options futures

The key criterion for distinguishing futures from options - the owner of the first must fulfill the terms of the agreement. In turn, the second financial instrument allows the party to the transaction not to fulfill the conditions specified in the contract. For example, do not sell shares, if they are cheaper in comparison with the price at the time of their purchase.

Types of futures. Production

However, we will continue to study futures. Modern traders classify them into two types. First, they sing out so-called staged futures. They represent a contract, at the time of execution of which the buyer undertakes to purchase, and the seller - to give the amount of an asset specified in the transaction specification. At the same time, the futures price will be that fixed at the freshest auctions. If the contract expires, and the seller does not give way to the asset, it can be fined.

Estimated

There are also settlement futures. Their peculiarity is that the seller and the buyer are calculated among themselves in the amounts that make up the difference between the price of the asset at the time of signing and execution of the agreement irrespective of its actual delivery.

Futures Specification Structure

One of the key elements of futures deals is the specification. It is the source in which the basic terms of the contract are fixed. The structure of the specifications of transactions of the type in question is usually as follows: the name of the agreement is indicated, its specific type is the settlement one or the production one, the value of the underlying asset, the timing, and also some speculative parameters. Among the key ones we can name a tick, or the minimum step of price change.

Its values depend on the specific asset. For wheat, if we talk about the world's major exchanges, it's about 5 cents a ton. Knowing what the volume of a futures contract is, a trader can easily calculate the total price change for the entire amount of the asset. For example, if a wheat agreement is concluded for 200 tons, then it can be calculated that the minimum adjustment for the price is $ 10.

Oil futures

How do you trade, say, futures for Brent and other types of oil? Very simple. On the modern commodity exchanges, the specified grade of oil is traded, as well as two more - Light Sweet and WTI. All of them are called marker, because other types of oil are valued, based on the correlation with the value traded. Contracts for black gold are performed on two major exchanges - NYMEX, which is in New York, as well as ICE in London. The American is trading with Light Sweet oil, on the English one - with two other grades. Features of trading in black gold are that they are round the clock.

A common reference point for traders of the planet is brand Brent. This oil is a marker for a significant part of the world's varieties of black gold, including Russian oil Urals. True, as some analysts point out, there are activists among traders who do not consider it appropriate to keep Brent for a benchmark. The main reason is that it is mined mainly in the North Sea, at Norwegian fields. The reserves are decreasing, as a result of which, according to some analysts, the liquidity of the goods decreases, and the price of oil may not reflect real market trends.

Brent futures can easily be recognized by BRN abbreviation of ICE London Stock Exchange. The full name of the contract sounds like Brent Crude Oil. Oil is delivered as part of contracts monthly. Accordingly, you can conclude deals at an interval of a month. The maximum duration of the contract is 8 years. There are short-term oil futures, and there are long-term oil futures. The size of the relevant contract is 1 thousand barrels. The value of 1 tick is a cent, that is, the minimum change in the contract price is $ 10.

How to win at oil auctions using futures? Quotations of oil, according to some economists, depend on the state of affairs in the global economy. If a person is well versed in this topic, he can try to sign a contract for the purchase or sale of oil at a fixed price, thus opening a long or short position, respectively. For example, if oil costs $ 80 per barrel, a person assumes that in 3 months the raw material will grow to $ 120. He concludes one minimum contract for the purchase of black gold at a price of $ 90 per barrel. Comes 3 months. Oil is expected to rise to $ 120 per barrel, and at the trader's disposal, it is at a price of 90. According to the conditions of the stock exchange, the required difference of $ 40 is immediately charged.

Futures and currency

Obviously, in order to trade oil using oil futures, a trader will need considerable cash investments. The minimum value of the contract, as we have already mentioned, is 1 thousand barrels, that is, if we take current, not the highest prices for black gold, we will need investments of about 50 thousand dollars. However, the trader has the opportunity to earn, by entering a futures on the dollar, on the MICEX, for example. Under the terms of the exchange, the minimum volume of the contract is 1 thousand dollars. Teak - 10 kopecks.

For example, a person assumes that the US dollar will fall from the current 65 rubles to 40. He opens a long position to sell one contract at a price, say $ 50, a period of 1 month. A month later, the ruble really strengthens positions - up to 40 units per US dollar. A person has the right to sell the amount specified in the contract specification at a rate of $ 50 and to gain from the exchange rate difference 10 rubles from each unit of the American currency. But if he does not guess with the course, he will somehow have to fulfill his obligations to the exchange. Usually this is due to the placement of the deposit of the required size on the trading floor account.

Similar earnings mechanisms are possible when trading in shares of enterprises. With a balanced, qualified analysis of the state of affairs in the market, a trader can count on excellent earnings through futures. Trade on modern exchanges is sufficiently comfortable, transparent and protected by Russian legislation. At the disposal of the trader, as a rule, there are convenient analytical tools, for example, a futures chart for the selected asset. The use of an appropriate financial mechanism among Russian financiers has gained quite stable popularity.