What is futures
A futures (or futures contract) is an agreement between two exchange participants that one will buy and the other will sell something for a predetermined price on a predetermined date.
Why is this needed?
In general, this is necessary, for example, for a real manufacturer and a real consumer of any product, if the price of a product is constantly jumping, and you want to plan a business. The manufacturer wants to know that the product to be produced will be bought for the money for which he is willing to produce this product. And the buyer is sure that when he needs a product, he will be able to buy it at a comfortable price.
What's the catch?
For these two, it consists in the fact that at the time of the agreed delivery, the market price for this product will be either lower or higher than the one they have chosen for themselves. It is also clear that the value of price confidence is more important to them than fear of overpaying. So they have everything in general
What are the types of futures?
The main difference between different futures is that deliverable futures require a real procedure for selling goods, while settlement futures do not. (And yes, futures can be anything - stocks, oil, or whatever.)
What are the features of futures
Firstly, this is the so-called free leverage. If you bought shares for 100 rubles with 10 rubles on your account, then the broker would really have to give you a loan in order to make a deal for the entire amount, and you would have to return the money with interest. Here, you do not pay anything (except for a 5-10% guarantee security, which will be returned back) until the deal is executed, and when executed, either pay the difference or get the difference, depending on who won.
Secondly, you can sell futures, counting on a decrease in its price, for your own benefit, without paying the broker interest. If you want to do the same with shares, you must borrow the shares from a broker, sell them on the exchange, wait for them to drop in value, and buy them back cheaper than you sold them in order to return them to the broker. So the broker will not lend them to you for free, you will also have to pay a percentage.
Third, transaction overheads are generally lower compared to stock trading, as there is no need to pay a depository to hold securities. You can resell futures for a lower commission.
Published at: 2020-12-23
Author: Rupert Kiaronce
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