What are futures and options?

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A futures contract is an agreement to buy or sell a commodity at a date in the future. Everything about a futures contract is standardized except its price. All of the terms under which the commodity, service or financial instrument is to be transferred us trading futures and options for dummies established before active trading begins, so neither side is hampered by ambiguity.

Futures contracts are traded at a futures exchange and only at a futures exchange. There are currently eight futures exchanges in the U.

The price of agricultural commodities us trading futures and options for dummies, foreign exchange rates change from minute to minute, interest rates and equity indexes rise and fall. Nothing stays the same. And that's why futures are so useful and so essential to business operations all over the world. The study of the factors that affect supply and demand.

The key to fundamental analysis is to gather and interpret this information and then to act before this information is incorporated into the futures price. This lag time between an event and its resulting market response presents a trading opportunity for the fundamentalist. This approach to price prediction is based on the premise that price us trading futures and options for dummies follow consistent historical patterns.

Us trading futures and options for dummies who engage in technical analysis study charts or statistics that measure price movements and try to find repetitive patterns. They start with the basic bar chart that plots high, low and closing prices of a futures contract over the life of the contract. Current activity is watched carefully for familiar patterns of price movement. Orders in the Pit: A futures brokerage firm "house" that is a member of Chicago Mercantile Exchange CME places orders to buy or sell futures or options contracts for companies or individuals and earns a commission on each transaction.

Everyone who trades futures and options on futures contracts must have an account with a futures brokerage house, which is officially called Futures Commission Merchant FCM.

Futures brokerages are not the same as stock brokerages, but some companies are licensed to trade both stocks and futures. Chicago Mercantile Exchange provides and regulates a marketplace where futures and options on futures are traded. CME clears, settles and guarantees all matched transactions in CME contracts occurring through its facilities. All people who trade futures contracts are not speculators.

People who buy and sell the actual commodities can use the futures markets to protect themselves from commodity prices that move against them. Speculators assume risk for hedgers. Speculators accept risk in the futures markets, trying to profit from price changes. Hedgers use the futures markets to avoid risk, protecting themselves against price changes. Introduced in the s, an option contract allows you the right, but not the obligation, to buy or sell an underlying futures contract at a particular price.

Futures prices are published for every trading session, and previous day prices are reported daily in major newspapers such as The Wall Street Journal Section 2. The system offers computerized order entry and trade matching on a wide range of futures and options products, virtually 24 hours a day, to people around the world.

The sign language of futures trading -- represent a unique system of communication that effectively conveys the basic information needed to conduct business on the trading floor. The signals let traders and other floor employees know how much is being bid and asked, how many contracts are at stake, what the expiration months are, the types of orders and the status of the orders.

All futures us trading futures and options for dummies have an expiration month; thus, there are standard hand signals that indicate each month. A us trading futures and options for dummies of Stewart-Peterson Group, Inc.

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In finance, a single-stock future SSF is a type of futures contract between two parties to exchange a specified number of stocks in a company for a price agreed today the futures price or the strike price with delivery occurring at a specified future date, the delivery date. The contracts are traded on a futures exchange. The party agreeing to take delivery of the underlying stock in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to deliver the stock in the future, the "seller" of the contract, is said to be "short".

The terminology reflects the expectations of the parties - the buyer hopes or expects that the stock price is going to increase, while the seller hopes or expects that it will decrease. When purchased, no transmission of share rights or dividends occurs. Being futures contracts they are traded on margin, thus offering leverage, and they are not subject to the short selling limitations that stocks are subjected to.

They are traded in various financial markets, including those of the United States, United Kingdom, Spain, India and others.

South Africa currently hosts the largest single-stock futures market in the world, trading on average , contracts daily. In the United States, they were disallowed from any exchange listing in the s because the Commodity Futures Trading Commission and the U. Securities and Exchange Commission were unable to decide which would have the regulatory authority over these products. After the Commodity Futures Modernization Act of became law, the two agencies eventually agreed on a jurisdiction-sharing plan and SSF's began trading on November 8, Two new exchanges initially offered security futures products, including single-stock futures, although one of these exchanges has since closed.

In , the brokerage firm Interactive Brokers made an equity investment in OneChicago and is now a part-owner of the exchange. Single stock futures values are priced by the market in accordance with the standard theoretical pricing model for forward and futures contracts, which is:.

Note the value of r will be slightly different in the two equations. The value of a futures contract is zero at the moment it is established, but changes thereafter until time T, at which point its value equals S T - F t , i.

From Wikipedia, the free encyclopedia. Energy derivative Freight derivative Inflation derivative Property derivative Weather derivative. Retrieved from " https: Views Read Edit View history. This page was last edited on 29 June , at By using this site, you agree to the Terms of Use and Privacy Policy.