An index futures contract states that the holder agrees to purchase an index at a particular price on a specified date in the future. If on that future date the price of the index is higher than. This page contains data on the E-mini Nasdaq Futures CFDs. The NASDAQ Index is a modified capitalization-weighted index of the largest and most active non-financial domestic and international companies listed on the NASDAQ.
The original use of futures contracts was to mitigate the risk of price or exchange rate movements by allowing parties to fix prices or rates in advance for future transactions. This could be advantageous when for example a party expects to receive payment in foreign currency in the future, and wishes to guard against an unfavorable movement of the currency in the interval before payment is received.
However, futures contracts also offer opportunities for speculation in that a trader who predicts that the price of an asset will move in a particular direction can contract to buy or sell it in the future at a price which if the prediction is correct will yield a profit. The Dutch pioneered several financial instruments and helped lay the foundations of the modern financial system. Among the most notable of these early futures contracts were the tulip futures that developed during the height of the Dutch Tulipmania in The Chicago Board of Trade CBOT listed the first-ever standardized 'exchange traded' forward contracts in , which were called futures contracts.
This contract was based on grain trading, and started a trend that saw contracts created on a number of different commodities as well as a number of futures exchanges set up in countries around the world.
The creation of the International Monetary Market IMM , the world's first financial futures exchange, launched currency futures. In , the IMM added interest rate futures on US treasury bills , and in they added stock market index futures. What are you searching? Download this page on PDF Government spending Final consumption expenditure Operations Redistribution.
Central bank Deposit account Fractional-reserve banking Loan Money supply. These forward contracts were private contracts between buyers and sellers and became the forerunner to today's exchange-traded futures contracts. Although contract trading began with traditional commodities such as grains, meat and livestock, exchange trading has expanded to include metals, energy, currency and currency indexes, equities and equity indexes, government interest rates and private interest rates.
Contracts on financial instruments were introduced in the s by the Chicago Mercantile Exchange CME and these instruments became hugely successful and quickly overtook commodities futures in terms of trading volume and global accessibility to the markets. This innovation led to the introduction of many new futures exchanges worldwide, such as the London International Financial Futures Exchange in now Euronext.
Today, there are more than 90 futures and futures options exchanges worldwide trading to include:. Most futures contracts codes are five characters. The first two characters identify the contract type, the third character identifies the month and the last two characters identify the year.
Futures traders are traditionally placed in one of two groups: In other words, the investor is seeking exposure to the asset in a long futures or the opposite effect via a short futures contract. Hedgers typically include producers and consumers of a commodity or the owner of an asset or assets subject to certain influences such as an interest rate. For example, in traditional commodity markets , farmers often sell futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan.
Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed. In modern financial markets, "producers" of interest rate swaps or equity derivative products will use financial futures or equity index futures to reduce or remove the risk on the swap. Those that buy or sell commodity futures need to be careful.
If a company buys contracts hedging against price increases, but in fact the market price of the commodity is substantially lower at time of delivery, they could find themselves disastrously non-competitive for example see: Speculators typically fall into three categories: With many investors pouring into the futures markets in recent years controversy has risen about whether speculators are responsible for increased volatility in commodities like oil, and experts are divided on the matter.
This gains the portfolio exposure to the index which is consistent with the fund or account investment objective without having to buy an appropriate proportion of each of the individual stocks just yet. When it is economically feasible an efficient amount of shares of every individual position within the fund or account can be purchased , the portfolio manager can close the contract and make purchases of each individual stock. The social utility of futures markets is considered to be mainly in the transfer of risk , and increased liquidity between traders with different risk and time preferences , from a hedger to a speculator, for example.
In many cases, options are traded on futures, sometimes called simply "futures options". A put is the option to sell a futures contract, and a call is the option to buy a futures contract. For both, the option strike price is the specified futures price at which the future is traded if the option is exercised.
Futures are often used since they are delta one instruments. Calls and options on futures may be priced similarly to those on traded assets by using an extension of the Black-Scholes formula , namely the Black—Scholes model for futures. For options on futures, where the premium is not due until unwound, the positions are commonly referred to as a fution , as they act like options, however, they settle like futures.
Investors can either take on the role of option seller or "writer" or the option buyer. Option sellers are generally seen as taking on more risk because they are contractually obligated to take the opposite futures position if the options buyer exercises their right to the futures position specified in the option. The price of an option is determined by supply and demand principles and consists of the option premium, or the price paid to the option seller for offering the option and taking on risk.
The Commission has the right to hand out fines and other punishments for an individual or company who breaks any rules. Although by law the commission regulates all transactions, each exchange can have its own rule, and under contract can fine companies for different things or extend the fine that the CFTC hands out.
The CFTC publishes weekly reports containing details of the open interest of market participants for each market-segment that has more than 20 participants. These reports are released every Friday including data from the previous Tuesday and contain data on open interest split by reportable and non-reportable open interest as well as commercial and non-commercial open interest. Following Björk  we give a definition of a futures contract.
We describe a futures contract with delivery of item J at the time T:. A closely related contract is a forward contract. A forward is like a futures in that it specifies the exchange of goods for a specified price at a specified future date. However, a forward is not traded on an exchange and thus does not have the interim partial payments due to marking to market.
Nor is the contract standardized, as on the exchange. Unlike an option , both parties of a futures contract must fulfill the contract on the delivery date.
The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position can close out its contract obligations by taking the opposite position on another futures contract on the same asset and settlement date.
The difference in futures prices is then a profit or loss. While futures and forward contracts are both contracts to deliver an asset on a future date at a prearranged price, they are different in two main respects:. Forwards have credit risk, but futures do not because a clearing house guarantees against default risk by taking both sides of the trade and marking to market their positions every night.
Forwards are basically unregulated, while futures contracts are regulated at the federal government level. Futures are always traded on an exchange , whereas forwards always trade over-the-counter , or can simply be a signed contract between two parties.
Futures are margined daily to the daily spot price of a forward with the same agreed-upon delivery price and underlying asset based on mark to market. Forwards do not have a standard. They may transact only on the settlement date.
More typical would be for the parties to agree to true up, for example, every quarter. The fact that forwards are not margined daily means that, due to movements in the price of the underlying asset, a large differential can build up between the forward's delivery price and the settlement price, and in any event, an unrealized gain loss can build up.
Again, this differs from futures which get 'trued-up' typically daily by a comparison of the market value of the future to the collateral securing the contract to keep it in line with the brokerage margin requirements.
This true-ing up occurs by the "loss" party providing additional collateral; so if the buyer of the contract incurs a drop in value, the shortfall or variation margin would typically be shored up by the investor wiring or depositing additional cash in the brokerage account. In a forward though, the spread in exchange rates is not trued up regularly but, rather, it builds up as unrealized gain loss depending on which side of the trade being discussed.
The result is that forwards have higher credit risk than futures, and that funding is charged differently. In most cases involving institutional investors, the daily variation margin settlement guidelines for futures call for actual money movement only above some insignificant amount to avoid wiring back and forth small sums of cash. The situation for forwards, however, where no daily true-up takes place in turn creates credit risk for forwards, but not so much for futures. Simply put, the risk of a forward contract is that the supplier will be unable to deliver the referenced asset, or that the buyer will be unable to pay for it on the delivery date or the date at which the opening party closes the contract.
The margining of futures eliminates much of this credit risk by forcing the holders to update daily to the price of an equivalent forward purchased that day. This means that there will usually be very little additional money due on the final day to settle the futures contract: In addition, the daily futures-settlement failure risk is borne by an exchange, rather than an individual party, further limiting credit risk in futures. This money goes, via margin accounts, to the holder of the other side of the future.
That is, the loss party wires cash to the other party. A forward-holder, however, may pay nothing until settlement on the final day, potentially building up a large balance; this may be reflected in the mark by an allowance for credit risk. Thus, while under mark to market accounting, for both assets the gain or loss accrues over the holding period; for a futures this gain or loss is realized daily, while for a forward contract the gain or loss remains unrealized until expiry.
Note that, due to the path dependence of funding, a futures contract is not, strictly speaking, a European-style derivative: This difference is generally quite small though.
With an exchange-traded future, the clearing house interposes itself on every trade. Thus there is no risk of counterparty default. The only risk is that the clearing house defaults e. From Wikipedia, the free encyclopedia. Government spending Final consumption expenditure Operations Redistribution. Central bank Deposit account Fractional-reserve banking Loan Money supply. Private equity and venture capital Recession Stock market bubble Stock market crash Accounting scandals.
Further information on Margin: Yale School of Forestry and Environmental Studies, chapter 1, pp. Many of the financial products or instruments that we see today emerged during a relatively short period. In particular, merchants and bankers developed what we would today call securitization. Mutual funds and various other forms of structured finance that still exist today emerged in the 17th and 18th centuries in Holland.
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The predetermined price the parties agree to buy and sell the asset for is known as the forward price. In case of loss or if the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available.
At this moment the futures and the underlying assets are extremely liquid and any disparity between an index and an underlying asset is quickly traded by arbitrageurs.