Were the first financial derivatives were used as hedge to a bad harvest, bad weather, among others, but currently its primary use is of a speculative character.
Futures contracts are an agreement in which the parties undertake to buy or sell an asset at a price pre-determined at a specific date in the future.
The concept is the same as that of the options contracts, since future contracts are dependent on an underlying asset that can be stocks, commodities (also called commodities), debt, indices, currencies, bitcoin.
The futures markets the most important are in the united States, among them: Futures CME, COMEX, CBOT, NYMEX, CBOE.
And in Spain, if you have interest to operate in this country, the futures are traded through the Official Market of Options, and Financial Futures of Spain, which is regulated and controlled by the CNMV.
Main features of the future
Contracts are standardized, that is to say that you agree to the underlying asset, the contract size, the expiration date and the form of settlement of the contract.
Ideal to operate both the upside and downside
There is counterparty risk because the Clearing houses linked to all of the bags that are sold in future, ensure that you always comply with the contracts.
Every day there is a liquidation of positions and recalculation of the collateral. If the position is winning or losing, we need to bring more or less a guarantee, and these profits or losses, are reflected in the Broker account. The money that can be lost in futures trading, can overcome the deposit as a guarantee.
It is always possible to settle an open contract.
Requires a lot of experience, it is not recommended if you are a beginner, as they have a high risk
It is not for accounts of little size, it requires more capital
Main uses of the future
1. Speculate with the movement of the underlying asset
This is the main use of the future as whom the purchase has no interest in being a holder of the underlying asset but instead seeks to profit from the movement of the underlying asset. Therefore, it is very common that futures contracts do not run. Rarely run and is awarded at the conclusion of the contract holder, generally are not left to expire: they will close before (running the opposite operation, that is to say if what we sold, to close it we should buy and vice-versa) or rolan to later dates (this is known as “rollover”).
In the case of executing the contract, keep the following in mind:
The buyer has the obligation to buy the underlying asset at the agreed price on the due date.
The seller, has the obligation to sell the underlying asset at the agreed price on the due date.
IMPORTANT: if you decide to run the contract, assuming that you bought it, or you forgot to close it or rolarlo, keep in mind that your broker will call you to ask where to send you the underlying asset that you purchased. In this case, you have two options: pay a fine and not receiving the asset or receive it. The problem is that, for example, if the contract you purchased is the equivalent of 10 tons of soybeans, will reach the 10 tons of soybeans. To avoid this, you need to close it or rolarlo.
2. Do coverages
The future, can be used to hedge a portfolio of stocks, since they can sell the discovered. Then we can have these situations:
The actions of our portfolio go up instead of down, then we will be losing a little money or to earn less, as what you lose the future used as a cover, what we will be earning with a stock portfolio.
The actions of our portfolio go down instead of going up, then the future will act as a shock absorber by reducing losses.