Futures contract
A futures (including futures ) is a binding exchange agreement (contract ) between two parties (as opposed to half-sided binding contracts for options ), a kind of exchange-traded futures contracts.
Such a contract is characterized by the obligatory delivery ( for the seller) or decrease ( for the buyer )
- A well-defined subject of the contract (the underlying )
- In a certain amount ( contract size ) and quality
- At a fixed date in the future (forward ) and
- To a concrete, fixed already in the contract price.
This allows a transparent trading, low trading costs and a slight market access.
Depending on the underlying distinction is made between financial futures ( Financial Futures) and commodity futures contracts (commodity futures ).
For the conclusion of a futures no costs are incurred in the form of premiums. Both buyers and sellers bear the same rights and obligations. Thus, it is not necessary to create a balance between the parties. This is in contrast to options.
Very well, both parties must make an advance payment but. It serves as a security deposit and is also called "margin payment ", " security " or " initial margin ". It amounts to only a fraction of the contract value - for example, five percent of the contract value or a fixed amount - and can be corrected depending upon the prevailing volatility up or down. The amount will be paid in the form of cash or deposit a prime government bonds prior to the execution of a contract to a margin account.
Mutual funds that invest exclusively in futures contracts, called managed futures.
History
The first manifestations of contracts took place in ancient Greece. The Greek philosopher Thales dealt among other things with the topic of weather. In his time, many Greeks made their living as olive growers. The olive press machines required for this could be rented from various retailers. Thales calculated in his works about the weather a prolonged heat wave, which impacted particularly favorable for olive, and decided to rent all the olive press machine for a very low price. As the long hot period actually occurred, needed almost every farmer is an olive press machine, and Thales could rent it at a higher price.
Developed in agriculture futures has its roots in the idea of insurance. In historical preforms the underlying principle exists for more than shares or options and can be traced back to the 17th century (Rice Stock Exchange Osaka ). It's always a matter of a specified quantity of a particular product in a certain quality at a specified price at a predetermined date to buy or sell.
An American farmer might say a milling companies have already sold about 27 tonnes of spring wheat at a price of $ 1,900 in February of the same year in 1830, with delivery and payment date with July 2 were determined. The advantage for the farmers was the security to have at a fixed price with the crop safe buyers. The milling companies secured against it with the business against rising prices from, as may be caused by bad harvests or hailstorms.
In the course of the 19th century began buyers and sellers, such transactions formal agreements (contracts ) to complete, which also served as credit insurance to banks. The launch of organized trading in futures contracts fell in 1848 with the founding of the first commodity futures exchange in Chicago, the Chicago Board of Trade (CBOT ).
Value, price, standardization and lever
The price of a futures contract subject to the free pricing of supply and demand on the futures exchange. He moves synchronously in general to the current price on the cash market of the underlying exchange rate (eg, DAX, EUR -USD, unleaded petrol, orange juice concentrate, etc.). Variations and divergent development between the spot market and futures allow arbitrage transactions, ie transactions with largely risk-free profit. Why can not develop far apart futures price and spot price itself.
The fact that the futures price but usually the price of the same underlying herein, is this not a contradiction: because the "true value" of a futures contract follows though - in most cases - the daily spot price, but depending on how far the settlement date still lies in the future, shifted upward. A September futures on any Underlying ( especially of a commodity ) is July 1, so cost more than the July futures whose settlement date is imminent. The reason: Someone must ensure that the goods (the value ) is actually kept up to the settlement date.
A Soft Commodity, such as orange juice concentrate, someone has to be stored, and if necessary cool and consign time. The associated costs are referred to as inventory carrying costs. The value of a futures is therefore generally calculated as:
Carrying cost - Cost of Carry
Assume that the spot price ( current price, spot price) of the underlying gold is 400 €, the interest rate is 5%, the cost of insurance for this gold for a year were € 3 and the storage costs for one year are € 2, then amount to the carrying cost for a period of one year:
- Interest: 5% of 400 € = 20 €
- Insurance costs € 3
- Storage costs € 2,
A total of 25 €.
It is worth noting in this context that interest rates are part of the inventory holding costs, so that these transactions are also influenced by the monetary policy. The interest rates as part of the carrying cost explained by the fact that for a year until the date of a capital is tied up ( in this example) from 400 €, which could otherwise be invested in interest-bearing alternative ( opportunity costs).
Value ( of Future)
Value ( forward price ) = spot price (spot price) inventory holding costs ( cost of carry )
In the example, the forward price is ( one year forward ) 400 € plus 25 € same € 425.
Because this inventory holding costs are " amortized " over the entire duration (ie, decrease the closer the settlement date occurs ), the value in the direction of maturity approaches ever closer to the spot price and falls to the Settlement Date with this together. The inventory holding costs can be mitigated by the availability payment.
Standardization
Each futures contract is so clearly defined that a market participant can be sure to be treated the same as any other.
A contract on the underlying frozen orange juice concentrate ( "Frozen Concentrated Orange Juice" ) Class A ( FCOJ -A) of the Commodity Exchange ICE Futures U.S. (formerly " New York Board of Trade " ) is defined, for example as follows:
- Delivery: 15,000 lbs ( about 6.8 metric tons)
- Quality: frozen concentrate of oranges from Florida and Brazil
- Pricing: in U.S. cents
- Minimum change in price per pound: five hundredths cents (7.5 U.S. $ / contract)
An October contract "Gold" on the New York Mercantile Exchange NYMEX has always 100 ounces of fine gold with a purity of at least 0,995 at a maturity on the last working day of October.
Pricing of futures exchanges are always in relation to the unit - in the above example, per pound ( 453.59237 grams). If the September FCOJ -A futures trading at 100.00 cents So, it follows from the above definition that 1 lbs. of the Underlying at 100 cents - so $ 1 - quoted. From this, the contract price easily calculate:
This is in financials otherwise: The value of the DAX futures ( FDAX ) at the European Exchange ( Eurex) is, for example 25 euros per index point of the DAX. With an index level of 4000 points, a FDAX contract would therefore € 100,000 in value represent ( 25x4000 ).
Lever
Since only a fraction of the value is needed as input to open a futures contract, it is called a lever instrument or derivative. How strong is the lever at a certain future, is determined by the exchange on which a future is traded. As a formula for the lever applies: Contract Value divided the time of purchase by the amount that is necessary to acquire a futures position.
For example, how much the lever is actually at a particular futures contract depends on three factors: contract size, contract value at the entry point and margin amount. The example of the DAX futures, which is purchased directly at Eurex, which might look like this:
- DAX score: 5000
- Contract value: € 25 per DAX - point
- Contract value at 5000 points: € 125,000
- Required Margin: 9000 € (own share )
- Leverage: 125000/9000 = 13.89
In this example, the lever would be 13,89 and thus affect the profit of one percent in the underlying at this particular contract by a factor of 13.89. A change in the underlying asset in the amount of 10% ( or 500 points in the DAX ), the gain from the risked capital ( the margin) thus 138.9 % (= 12501, lever x 10%).
Of course, the lever acts in the opposite direction. Loses the underlying 10%, is the loss of the futures owner 138.9 % - more than the risked capital and the investor would have the shortfall = 3501 nachschießen.
Future species
Under the particular financial futures fall on Aktiendindizes futures, individual stocks (so-called single-stock futures ), interest rate indices (eg Euro - Schatz Futures, Euro Bobl and Euro -Bund Futures) and currencies.
The Commodity Futures are futures on precious metals and base metals, agricultural products ( eg cereals), or energy (oil, natural gas, coal and electricity futures ).
Trade
In the modern futures markets less than 3% of the contracts are fulfilled by Real exchange. The vast majority is " closed out " by an offsetting transaction before the due date. The holder of a short position ( seller) thus acquires a long position and vice versa. The difference between the prices of the two contracts results in a speculative gain or loss.
The strong overhang of speculative transactions to the detriment of traditional -based real exchange hedging transactions has led to a multiplication of the trading volume on the futures exchanges in the second half of the 1990s and increased their liquidity. In 2002 alone, at the largest derivatives exchange, Eurex traded over half a billion contracts.
Criticism
In particular, the strong increase in the share of pure speculation in futures on the commodity market is observed with concern. Critics suggest that derivative transactions with raw materials have led to massive price increases of food products such as cereals, sugar, cooking oil and milk on the world markets. In 2010 alone, food prices have risen by more than a third, according to the World Bank. 40 million people were thus additionally plunged into absolute poverty.
Trading in crude oil futures in 2008 led to a price bubble in the crude oil market that burst in the summer. The U.S. Securities and Exchange CFTC made especially exaggerated speculation responsible and examined the impact of financial investors on price formation in commodity markets. She came to the conclusion that producers and consumers of raw material "short" (they rely on falling prices ) and asset managers, hedge funds and other financial investors clearly "long" ( pressure on rising prices ). The CFTC shares his thoughts whether limits should be introduced in the futures business, to prevent the global economy could be destabilized. Nevertheless futures to hedge (hedging ) are used against undesirable price developments but still. How to use " hedgers " Futures to deliver macroeconomic risks against a corresponding expected return to speculators.
In mid-October 2011, started foodwatch a campaign against speculation with food. To this end, a report was published that is to show that speculation in futures is driving food prices up.