Futures contract

The futures contract ( English futures contract ) is a financial contract , which is a publicly traded , unconditional exchange transaction has for an object.

General

Futures contracts and futures contracts are used synonymously, especially in Switzerland , but the futures contract is only a sub-type of futures contract. In concrete terms, it is an exchange-traded unconditional forward transaction that can only be traded on the exchange in its form as a future . All commercial properties ( securities , foreign exchange [ English financial futures ] or precious metals and commodities [ English commodity futures ]) can be traded as futures. All other forms of unconditional futures (such as forwards or swaps ) or all conditional futures (such as options ) are traded over the counter and are not futures contracts.

history

Amsterdam is considered to be the first city to enter into futures contracts. Here, in 1556, the “Sheriff” Willem Dirkszoon Baerdes first accused German and Flemish traders of driving up the price of grain through futures contracts, so that futures trading was still banned in 1556. From 1609 onwards there was speculation in Amsterdam with shares in the “Verenigte Oostindische Compagnie” through short selling via futures contracts. In 1612, 200 brokers with 600 employees were trading futures in Amsterdam. Amsterdam created an exchange for the grain trade in 1617 , in which the government itself participated in 1647/48. In 1637, futures contracts played an important role in the tulip mania . Amsterdam prohibited the grain futures trading in 1693, in 1720 it came here for a first date mass trade in cereals, vegetable oil , oil seeds , coffee , cocoa , brandy , cochineal and saltpeter .

The first pure futures exchange was the “Dojima Rice Market”, founded in Osaka in 1732 , with 800 brokers and 500 wholesalers among its 1,300 rice dealers. In the coffee trade, the New York Stock Exchange introduced futures trading in 1880, Le Havre followed in 1881. In 1884, the Chicago Board of Trade processed standardized commodity futures for the first time . Since Hamburg did not want to lose its trading position, the coffee futures exchange began here in 1887. The Hamburg coffee futures trading was aimed at securing against price risks and took place in the mornings and afternoons in a trading hall in the free port (Sandtorquai in the Speicherstadt ) rented by the coffee association .

Measured in terms of trading volume , the existing since 1923. Today's releases S & P 500 - stock index of the world's major futures. In February 1982, the Kansas City Board of Trade (KCBoT) began trading the first futures contract on a stock price index. This was followed by other futures contracts on the Chicago Mercantile Exchange in April 1982 and on the New York Stock Exchange Composite Index on the New York Futures Exchange in May 1982 (see CRB index ). The most important futures in terms of value today are in crude oil trading .

species

Under the Financial Futures particular Futures on falling stock indices , individual stocks ( English single-stock futures ), interest rate indices (z. B. Euro Schatz Futures , Euro-Bobl future and Euro-Bund futures ) and Forex . The commodity futures include futures on precious metals and on base metals, agricultural products (e.g. grain ) or energy (crude oil, natural gas, coal and electricity futures).

Content of the contract

In order to be tradable on an exchange, futures contracts must be highly standardized, especially for commodities. The standards include in particular the unit of measure (approximately nominal value ) and type (future and its underlying ) of the subject of the contract. The aim of futures contracts is to standardize trading between the counterparties and thus to facilitate them. Each futures exchange has drawn up its own standard contract for each trading object. The due dates are also specified by the respective futures exchange.

Example of a standardization

A contract on the underlying "frozen orange juice concentrate" ( English Frozen Concentrated Orange Juice ) Class A (FCOJ-A) on the commodity futures exchange ICE Futures US (formerly "New York Board of Trade") is as defined as follows:

Delivery quantity: 15,000 lbs (approx. 6.8 metric tons),
Quality: frozen concentrate of oranges from Florida or Brazil,
Price quotation: in US cents
Minimum price change per lbs : 5/100 cents (7.5 US $ / contract, calculated as: 5/100 cents per lbs at 15000 lbs → 5 * 15000/100 = 750 cents corresponds to 7.5 US $, unit equation: cents * lbs / lbs = cents).

An October “Gold” contract on the New York Mercantile Exchange always includes 100 ounces of fine gold with a fineness of at least 0.995 with a maturity on the last working day of the previous month, ie September.

Futures exchanges are always quoted in terms of the unit of measurement (in the example above for frozen orange juice concentrate per pound (453.59237 grams)). If the September future FCOJ-A is quoted at 100.00 cents, it follows from the definition above that 1 lbs. of the base value is quoted at 100 cents - i.e. 1 dollar. The contract price can be calculated from this:

1 (dollars / lbs.) × 15,000 (shipping quantity) = 15,000 dollars.

This is no different with financial stocks: The value of the DAX future (FDAX) on the European Exchange (Eurex) is, for example, 25 euros per index point on the DAX . With an index level of 4000 points, an FDAX contract would represent 100,000 euros in value (25 × 4000).

The standard contracts of the International Swaps and Derivatives Association ( English ISDA Master Agreements ) are only for the off-exchange trading with derivatives provided and can not be used for futures contracts.

Business transaction

These standardized futures transactions are traded on futures exchanges, including Eurex ( Germany / Switzerland ), in Austria the Austrian Futures and Options Exchange (ÖTOB; part of the Vienna Stock Exchange ), in the USA the Chicago Board of Trade (CBoT) and Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange , the UK London International Financial Futures and Options Exchange (LIFFE) or ICE Futures . A Clearing ensures the minimization or elimination of counterparty risk in the settlement . Clearing in connection with a futures exchange is understood to mean the settlement , collateralization and monetary and piece-wise regulation of all transactions concluded on the futures exchange . Trading on futures exchanges is primarily characterized by the clearing and settlement system, which is institutionalized by a clearing house . The buyers and sellers of the contracts are no longer contracting parties , because the futures exchange clearing house acts between the two and becomes their contracting partner (counterparty).

When concluding a futures contract, there are no costs in the form of premiums . Both contractual partners must make an advance payment . It serves as a security deposit and is also called "margin deposit" ( English initial margin ). It is only a fraction of the contract value - e.g. B. 5% or a fixed amount - and can be adjusted up or down depending on the prevailing volatility . The amount is paid into a margin account in the form of account balances or the deposit of high- quality government bonds before the execution of an order.

Value, Price and Leverage

The stock exchange price of a future is subject to free pricing from supply and demand on the futures exchange. It generally moves synchronously with the current price on the cash market of the underlying price. Deviations and divergent developments between the cash market and the future enable arbitrage , i.e. transactions with largely risk-free profit. Therefore, the future price and the spot price cannot deviate far from each other.

The fact that the future price usually differs from the price of the same underlying is not a contradiction in terms: The intrinsic value of a futures contract follows - in most cases - the daily spot price, but depending on how far the settlement time is still in the future lies, shifted upwards. A September future on any underlying will therefore cost more on July 1st than the July future, the settlement date of which is imminent. The reason is that someone has to ensure that the goods (the value) are actually kept ready until the fulfillment date.

A soft commodity such as green coffee has to be stored, cooled if necessary and delivered on time. The associated costs are known as inventory costs. The value of a future is therefore generally calculated as follows:

Holding costs ( English Cost of Carry )

Assuming that the spot price (current price, English spot price ) of the underlying gold is € 400, the interest rate is 5%, the insurance premiums for this gold for one year are € 3 and the storage costs for one year are € 2, then the holding costs are for a period of one year:

  Zinsen: 5 % von 400 € =   20 €
  + Versicherungskosten      3 €
  + Lagerhaltungskosten      2 €
  = Haltekosten             25 €

In this context, it should be borne in mind that the interest is part of the holding costs, so that these transactions are also influenced by the interest rate level. The interest as part of the holding costs is explained by the fact that a capital (in this example) of € 400 is tied up for one year until the date, which could otherwise be invested alternatively at interest ( opportunity costs ).

Value (of a future): Value (forward price) = spot price +/- forward spread.

In the example, the term price (term in one year) is € 400 plus € 25 = € 425.

Because these inventory costs are "written off" over the entire term (ie increase or decrease the closer the fulfillment date comes), the value approaches the spot price closer and closer to the end of the term and coincides with this on the fulfillment date. The inventory costs can be reduced by the availability premium.

lever

Since only a fraction of the value is required as a stake to open a futures contract, it is called a leverage instrument. How strong the leverage is for a particular future is determined by the exchange on which a future is traded. The formula for the leverage is: the contract value at the time of purchase divided by the amount necessary to acquire a future position.

Example: How strong the leverage actually is on a certain futures contract depends on three factors: contract size , contract value at the time of entry and margin level. Using the example of the DAX future, which is purchased directly at Eurex, it could look like this:

DAX score: 5000
Contract value: € 25 per DAX point
Contract value at 5000 points: € 125,000
Required margin: € 9,000 (own share)
Leverage: 125000/9000 = 13.89

In this example, the leverage would be 13.89 and thus the gain of one percent in the base value for this specific contract would have a factor of 13.89. If the base value changes by + 10% (or 500 points in the DAX), the profit from the risked capital (the margin) is 138.9% (leverage × 10%, corresponds to € 12,501).

trade

In modern futures markets, less than 3% of contracts are fulfilled through real swaps . The vast majority is by an offsetting transaction before the due date closed out . The owner 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.

In the second half of the 1990s , the large excess of speculative transactions to the detriment of traditional hedging transactions based on real exchanges led to a multiplication of the trading volume on the futures exchanges and increased their liquidity . In 2002 , over half a billion contracts were traded on the largest derivatives exchange , Eurex alone .

criticism

The sharp rise in the share of pure speculation with futures on the commodities market is being watched with concern. Critics suspect that derivative transactions with raw materials have led to massive increases in the price of foods such as grain, sugar, cooking oil and milk on the world markets. According to the World Bank, food prices rose by more than a third in 2010 alone . 40 million people were plunged into absolute poverty as a result. It is debated whether or not speculation affects commodity prices. Rising food prices as a result of speculation would increase poverty, especially in emerging countries , and would also affect many low- income earners in industrialized countries .

In an empirical analysis of the prices of agricultural commodities in the period between 2006 and 2013 on the futures markets, economists from the Institute for the World Economy came to the conclusion in March 2014 that actors only contributed to price increases for cocoa and live cattle through their activities on the futures markets to have. For all other agricultural commodity markets examined, however, no influence of speculative activities on commodity prices can be proven with the applied analysis methods. The Petroleum Industry According to about 90% of but are market participants in the trading of oil futures speculation involved and have no interest in the ownership of the oil, but try from price changes gains to achieve.

Trading in crude oil futures led to a speculative bubble in the crude oil market in 2008, which burst in the summer of 2008. The US Securities and Exchange Commission CFTC blamed exaggerated speculation for this.

Others

Mutual funds that invest exclusively in futures contracts are called managed futures .

literature

Michael Bloss / Dietmar Ernst: Derivate - Handbook for financial intermediaries and investors. Oldenbourg Verlag, Munich, Vienna 2008, ISBN 978-3-486-58354-0 .
John C. Hull : Options, Futures, and Other Derivatives. 7th, updated edition. Pearson Studium, Munich et al. 2009, ISBN 978-3-8273-7281-9 .