intro futures
TRANSCRIPT
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A Trader Guide to FutureThoght Leeship with Globl Pespective
CME GROUP EDUCATION
How the world advances To order prinTed copies click here
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2
A Trader Guide to Future
CME Grup ers the widest rage tradable prducts
available aywhere all a sigle platrm: iterest
rates, stck idexes, currecies, agriculture, eergy,
metals (idustrial ad precius) ad alterative
ivestmet prducts, such as weather ad real estate. I
mre tha 150 cutries, ur cetralized glbal exchage
delivers trasparet pricig ad equal access virtually
arud the clck. With the backig CME Clearig,
the leadig derivatives clearig acility i the wrld, the
acial itegrity ur markets is usurpassed.
SECTION 1
What Are Futures? 4
SECTION 2
Who Trades Futures? 6
SECTION 3
Why Trade Futures? 9
SECTION 4
How Does a Trade Work?13
SECTION 5
How Do I Get Started?24
SECTION 6
Futures Quiz30
TABLE OF CONTENTS
INTrOduCTION
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This is your introductory guide to trading utures.
I youre a trader who is interested in branchingout rom equities or cash FX into utures, this
guide will provide a great starting point. I you
already know something about utures trading,
you can jump to any chapter or a review or
to the back o the booklet and test your
knowledge in our Futures Quiz.
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I the Uited States, tradig utures bega i the mid-19th cetury with the
establishmet cetral grai markets where armers culd sell their prducts
either r immediate delivery, als called the spt r cash market, r r rward
delivery. These rward ctracts were private ctracts betwee buyers ad
sellers ad became the reruer tdays exchage-traded utures ctracts.
Bth rward ctracts ad utures ctracts are legal agreemets t buy r sell
a asset a specic date r durig a specic mth. Where rward ctracts
are egtiated directly betwee a buyer ad a seller ad settlemet terms may
vary rm ctract t ctract, a utures ctract is acilitated thrugh a utures
exchage ad is stadardized accrdig t quality, quatity, delivery time ad
place. The ly remaiig variable is price, which is discvered thrugh a
aucti-like prcess that ccurs the Exchage tradig r r via CME Glbex,
CME Grups electric tradig platrm.
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What Are Future?SECTION 1
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CME GrOuP EduCaTION | SECTIon 1
Althugh tradig bega with r tradig traditial agricultural cmmdities such as grais ad livestck,
exchage-traded utures have expaded t iclude metals, eergy, currecies, equity idexes ad iterest rate
prducts, all which are als traded electrically.
FUTUREs
Stadardized ctracts r the purchase
ad sale acial istrumets r physical
cmmdities r uture delivery a regulated
cmmdity utures exchage.
FORWARD CONTRACT
Aprivate, cash-market agreemet betwee
a buyer ad seller r the uture delivery a
cmmdity, at a agreed up price. I ctrast
t utures ctracts, rward ctracts are tstadardized ad are -traserable.
sPOT MARkET
A market where cash trasactis r the
physical r actual cmmdity ccur.
CME GlObEx
The rst glbal electric tradig system r
utures ad ptis has evlved t becme the
wrlds premier marketplace r derivatives
tradig. With ctiual ehacemets, the
platrm has eectively eabled CME G rup,
already kw r ivati, t trasrm itsel
it a leadig high-tech, glbal acial
derivatives exchage.
AGRICUlTURE
ENERGy
EqUITy Fx
INTEREsT RATEs
METAls
DEFiNiTiON
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Who Trade Future?SECTION 2
Cvetially, traders are divided it tw mai categries, hedgers ad speculatrs.
Hedgers use the utures market t maage price risk. Speculatrs the ther had
accept that risk i a attempt t prt rm avrable price mvemet. While utures
help hedgers maage their expsure t price risk, the market wuld t be pssible
withut the participati speculatrs. They prvide the bulk market liquidity, which
allws the hedger t eter ad exit the market i a efciet maer. Speculatrs
may be ull-time pressial traders r idividuals wh ccasially trade. Sme hld
psitis r mths, while thers rarely hld t a trade mre tha a ew secds.
Regardless their apprach, each market participat plays a imprtat rle i
makig the utures market a efciet place t cduct busiess. The llwig pages
will prvide brie prles the mst cmm types market participats.
When we started 21 years ago, the trading was sel-contained. Overthe last 15 years, its broadened so much with electronic tradingthat people now have access to these markets rom any place in the
world. Its been interesting to see how the markets have grown and
matured because o that. Jim Iui Broker
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CME GrOuP EduCaTION | SECTIon 2
HedgerHedgers have a psiti i th e uderlyig cmmdity. They use utures t reduce r
limit the risk assciated with a adverse price chage. Prducers, such as armers,
te sell utures the crps they raise t hedge agaist a drp i cmmdity prices.
This makes it easier r prducers t d lg-term plai g. Similarly, csumers
such as d prcessig plats te buy utures t secure their iput csts. This
allws them t base their busiess plaig a xed cst r cre igrediets, such
as cr ad wheat. other examples iclude: airlies hedgig uel csts r jewelry
mauacturers hedgig the cst gld ad silver. This makes it easier r these
cmpaies t maage price risk ad stabilize the cst passed t th e ed-user.
Individua TraderMay speculatrs are idividuals tradig their w uds. Traditially, idividual
traders have bee characterized as idividuals wishig t express their pii abut,
r gai acial advatage rm, the directi a particular market. Electric tradig
has helped t level the playig eld r the idividual trader by imprvig access t
price ad trade irmati. The speed ad ease trade executi, cmbied with the
applicati mder r isk maagemet, give the idividual trader access t markets
ad strategies that were ce reserved r istitutis.
Portoio ManagerA prtli r ivestmet maager is respsible r ivestig r hedgig the assets
a mutual ud, exchage-traded ud r clsed-ed ud. The prtli maager
implemets the uds ivestmet strategy ad maages the day-t-day tradig.
Futures markets are te used t icrease r decrease the verall market expsure
a prtli withut disruptig the delicate balace ivestmets that may have take
a sigicat ert t build.
What Tpe o Trader are There?
PRODUCERsHedge againt a drop
in commodit price.
CONsUMERsHedge againt a ra
in commodit price.
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Proprietar Trading FirmPrprietary tradig rms, als kw as prp shps, prt as a direct result their
traders activity i the marketplace. These rms supply their traders with the educati
ad capital required t execute a large umber trades per day. By usig the capital
resurces the prp shp, traders gai access t mre leverage tha they wuld i
they were tradig th eir w accut. They als gai access t the type research
ad strategies develped by larger istitutis.
Hedge FundA hedge ud is a maaged prtli ivestmets that uses advaced ivestmet
strategies t maximize returs, either i a abslute sese r relative t a specied
market bechmark. The ame hedge ud is mstly histrical, as the rst hedge uds
tried t hedge agaist the risk a bear market by shrtig the market. Tday, hedge
uds use hu dreds dieret strategies i a ert t maximize returs. The diverse
ad highly liquid utures marketplace ers hedge uds the ability t execute large
trasactis ad either icrease r decrease the market expsure their prtli.
Maret MaerMarket makers are tradig rms that have ctractually agreed t prvide liquidity
t the markets, ctiually prvidig bth bids (a expressi t buy) ad ers (a
expressi t sell), usually i exchage r a reducti i tradig ees. Icreasigly
imprtat are electric market makers wh as a grup, prvide much the market
liquidity that allws large trasactis t take place withut eectig a substatial
chage i price. Market makers te prt rm capturig the spread, the small
dierece betwee the bid ad er prices ver a large umber trasactis, r by
tradig related utures markets that they view as beig priced t prvide pprtuity.
Speculators
Hedgers
DEFiNiTiON
lIqUID
A characteristic a security r cmmdity
market with eugh vlume ad pe iterest
(psitis) t allw r etry ad exit at a air
ad efciet price. Market participats are
iclied t seek ut liquid ivestmets s
that their tradig activity will t iuece
the market price.
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CME GrOuP EduCaTION | SECTIon 1
Wh Trade Future?SECTION 3
Futures prvide a ast ad cst-eective way r yu t access acial ad cmmdity
markets arud the clck. Icreased iterest i glbal markets has accelerated media
atteti ad attracted the iterest traders rm arud the wrld. Frm their study
the markets, traders develp a perspective the directi cmmdity prices,
eergy prices, metal prices, currecies, iterest rates ad stck idexes. CME Grup
ers prducts acrss all majr asset classes givig yu a direct ad trasparet
methd t act yur isight a d participate i market treds.
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leverageLeverage utures ctracts is created thrugh the use perrmace bds,
te reerred t as margi. This is a amut mey depsited by bth the buyer
ad seller a utures ctract ad the seller a pti ctract t esure their
perrmace the ctract terms. The perrmace bd may represet ly a
racti the ttal value the ctract, te 3 t 12%, makig utures a highly
leveraged tradig vehicle. Therere, utures ctracts represet a large ctract value
that ca be ctrlled with a relatively small amut capital. This prvides the trader
with greater exibility ad capital efciecy. Thi increaed everage, however, can
ao poe additiona ri that reuire a we thought out ri management pan
that addree the amount o everage ued.
What Mae Future Trading Dierent?
Maimizing Capita EciencThe leverage available i utures tradig allws yu t utilize yur capital mre efcietly.
Fr example, i yu have $200,000 ad yu wat t speculate the directi the
S&P 500, r the purpses this illustrati, yu have three chices:
bu $200,000 o toc uing a avaiae capita. This ca be de bypurchasig a Exchage-Traded Fud (ETF), which r this example wuld be SPY.
SPY seeks t replicate, et expeses, the S&P 500 Idex. It is regulated as, ad
trades i, equity (stck) like shares. Yur expsure wuld be $200,000 wrth
SPY shares.
bu the ame toc (ETF-sPy)on margin, taing advantage o the 2:1 everage
in euitie. This allws yu t ctrl the same prtli stcks (ETF-SPY) by
utilizig $100,000 available capital.
bu uture on margin, taing advantage o the approimate 10:1everage avaiae with E-mini s&P 500 contract. This allws yu t ctrl the
same prtli stcks by leveragig $20,000 available capital. The three E-mii
S&P 500 ctracts represet apprximately the same $200,000 expsure the
S&P 500 idex stcks.
I each case, yu have expsure t the same type market risks ad pprtuities,
but i the al example, yu gai the same amut market expsure while tyig
up sigicatly less yur available capital. Please te the gures abve represet
margi ad perrmace bd amuts that are subject t chage.
ReguationFutures markets are regulated by the U.S. Cmmdity Futures Tradig Cmmissi
(CFTC), a idepedet gvermet agecy rmed i 1974 t ster pe, cmpetitive
ad acially sud utures ad ptis markets, ad t prtect market users ad the
public rm ay raud, maipulati r abusive practices.
Ta AdvantageTradig utures may er specic tax advatages cmpared t ther istrumets such
as stcks. Be sure t discuss yur particular tax bligati with yur tax advisr.
The ability t leverage may remid yu buyig stcks margi. Hwever, i equity
markets, buyig margi meas yu brrw mey t make the purchase. I the
utures markets, yur perrmace bd is t partial paymet r the prduct. It is
gd-aith mey yu pst t esure yu are able t meet the day-t-day bligatis
hldig that psiti. Bth buyers ad sellers i utures pst perrmace bds.
Psitis are the marked-t-market a twice daily basis, where prts are creditedad lsses are debited rm yur accut.
What do we mean everaged?
The E-mii S&P 500 Stck Idex utures ctract culd have a value $67,500,
but yu wuld be able t buy r sell this ctract by pstig a perrmace bd
abut $6,000, which is ly 9% the ctract value.
DEFiNiTiON
PERFORMANCE bOND
The miimum amut uds that must be
depsited by a custmer with his brker, by a
brker with a clearig member r by a clearig
member with the Clearig Huse.
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CME GrOuP EduCaTION | SECTIon 3
TranparencCME Grup prvides a cetralized marketplace where all prices are kw t everye.
Tradig is pe, air ad aymus. Cmprehesive price ad trasacti data
is distributed i real time, prvidig a clear r trasparet view the market t
all participats.
Eectronic Acce Around the CocCME Grup prvides custmers arud the wrld with the ability t avigate ecmic
ucertaity, maage risk ad leverage acial pprtuity virtually 24 hurs a
day. Available rm Suday eveig thrugh late Friday ater, the CME Glbex
electric tradig platrm cects custmers i mre tha 150 cutries wh ca
react t chage as it happes.
segregated AccountFuds used t trade utures are held i a segregated accut. That meas that yurmey is t pled with ther custmers mey r with the rms mey. It is held
idepedetly. Csequetly, i yur brker were t experiece ay kid acial
difculty, it wuld t aect yur persal accut. This is t the case i the
ver-the-cuter (oTC) market, where uds are te cmmigled.
When euit and ond maret are voatie,
proeiona ma e more ie to hedge their toc
and ond portoio uing euit inde and interet
rate uture. In addition, the ma diveri their aetthrough commodit and currenc uture ecaue
o their ow correation to invetment in toc
and ond.
What Dierentiate CME Group Future Maret?
liuiditThe established utures markets ered by CME Grup are highly liquid. By prvidig
electric access t a brad spectrum prducts a sigle platrm, ur markets
attract a wide rage participats wh trasact millis ctracts a daily basis.
This vlume makes it easier r traders t execute rders ay size quickly adefcietly, withut eectig a substatial chage i price.
DEFiNiTiON
VOlATIlITy
A measuremet the chage i price ver a
give time perid.
Portoio DiverifcationCME Grup utures prducts allw yu t mre easily diversiy yur prtli.
CME Grup ers u tures prducts rm all majr assets classes, icludig reig
currecies such as the Eurpea eur, the British pud ad the Japaese ye, Stck
Idex Prducts like the S&P 500, nASDAQ-100 ad Dw Jes Idustrial Average,
iterest rate ad treasury prducts, cmmdities icludig grais ad il seeds, eergy
such as crude il, atural gas, gaslie ad ethal, metals icludig gld ad silver,
ad weather ad husig idexes.
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Financia saeguardCME Clearig, which is wed by CME Grup, prvides idustry-leadig acial
itegrity that is the stadard r makig markets mre efciet. CME Clearig is
respsible r settlig tradig accuts, clearig trades, cllectig ad maitaiig
perrmace bd u ds, regulatig delivery, acilitatig the pti exercise prcess
ad reprtig trade data.
The presece a cetral cuterparty like CME Clearig is a imprtat advatage
cmpared t such ver-the-cuter markets as the spt r cash Frex market.
over-the-cuter trasactis are made betwee tw private parties with cetral
clearig cuterparty t exted credit r assure perrmace the agreemet (as
shw i the Bilateral Mdel t the right). This leaves participats at risk r a ptetial
deault the ther party, which traslates it icreased capital requiremets, credit
iefciecies ad higher verall credit risk.
I its mre tha 100-year histry, there has ever bee a ailure by a clearig member
t meet a perrmace bd call r its delivery bligatis, r has there bee a ailure
a clearig member rm resultig i a lss custmer uds. This system has bee
remarkably successul i perids market vlatility ad ecmic ucertaity, ad it
ctiues t be a imprtat custmer beet i derivatives markets.
By servig as the cuterparty t every trasacti, CME Clearig becmes the
buyer t every seller ad th e seller t every buyer, substatially reducig the acial
perrmace risk each market participats psiti i CME Grup prducts. Further,
by markig psitis t market twice each day, CME Clearig helps t elimiate the
accumulati lsses r debt. This helps idividual custmers maage their risk ad
als helps ctai risk r the market as a whle.
DEFiNiTiON
CME ClEARING
The divisi CME Grup that crms,
clears ad settles all CME Grup trades.
CME Clearig als cllects ad maitais
perrmace bd uds, regulates delivery,
acilitates the pti exercise prcess ad
reprts tradig data.
OVER-THE-COUNTER (OTC)
A market i which custm-tailred ctracts are
bught ad sld betwee cuterparties
ad are t exchage-traded.
CENTRAl COUNTERPARTy ClEARING MODEl
bIlATERAl MODEl
ClEARING
Firm Aseing
Firm ACutomer
Firm bbuing
Firm bCutomer
Firm Aseing
Firm ACutomer
Firm bbuing
Firm bCutomer
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How Doe a Trade Wor?SECTION 4
Bere we g thrugh specic examples, there are sme key terms ad ccepts yu
eed t uderstad.
Contract sizeBy deiti, each utures ctract has a stadardized size that des t chage. Fr
example, e ctract cr represets 5,000 bushels a very specic type ad
quality cr. I yu are tradig British pud utures, the ctract size is always
62,500 British puds. The E-mii S&P 500 utures ctract size is always $50 times
the price S&P 500 idex. Specicatis r all prducts traded thrugh CME Grup
ca be ud at cmegroup.com.
Contract VaueCtract value, als kw as a ctracts tial value, is calculated by multiplyig
the size the ctract by the curret price. Fr example, the E-mii S&P 500 ctractis $50 times the price the idex. I the idex is tradig at $1,425, the value e
E-mii ctract wuld be $71,250.
Tic sizeThe miimum price chage i a utures r ptis ctract is measured i ticks. A tick
is the smallest amut that the price a particular ctract ca uctuate. Tick size
varies rm ctract t ctract. A tick i the E-mii S&P 500 utures ctract is equal
t e-quarter a idex pi t. Sice a idex pit is valued at $50 i the E-mii,
e tick is equivalet t $12.50.
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Price limitSme utures markets impse limits daily price uctuatis. A price limit is the
maximum amut the price a ctract ca mve i e day based the previus
days settlemet price. These limits are set by the Exchage ad help t regulate
dramatic price swigs. Whe a utures ctract settles at its limit bid r er, the limit
may be expaded t acilitate trasactis the ext tradig day. This may help
utures prices retur t a level reective the curret market evirmet.
Mar-to-MaretFutures ctracts llw a practice kw as mark-t-market. At the ed each
tradig day, the Exchage sets a settlemet price based th e days clsig price
rage r each ctract. Each tradig accut is credited r debited based that
days prts r lsses ad checked t esure that the tradig accut maitais the
apprpriate margi r all pe psitis. As described i the Why Trade Futures?
secti page 9, yur psiti i the market is secured by a perrmace bd. A
perrmace bd is a amut mey that must be depsited with yur brker
t pe r maitai a psiti i a utures accut. This gd-aith mey helps t
esure that all market participats are able t meet their bligatis. It h elps maitai
cdece i the acial itegrity the Exchage as a whle. The practice markig
accuts t market helps esure that yur accut maitais sufciet capital t meet
margi requiremets a daily basis.
Margin CaI yu add t a psiti r sustai a lss ad yur accut lger meets the
perrmace requiremets, yu will receive a margi r a perrmace bd call rm
yur brker. The margi call will require that yu either add mey t the accut r
reduce yur psitis util the miimum perrmace bd requiremets are satised.
Brkerage rms may susped tradig privileges r clse accuts that are uable t
meet their miimum perrmace bd requiremets.
Mark-t-market is a imprtat saety measure that prvides additial prtecti
r yu ad yur brkerage rm. Cmbied with ther acial saeguards, mark-t-
market is a majr beet dig busiess a regulated exchage.
Rea-Word Eampe
The llwig are a ew hypthetical scearis hw istitutial market participats
use utures t hedge market risk.
Hedging Corn PriceCr armers, like ther prducers, are at risk rm chagig prices. I a harvest is gd
ad demad is lw, cr will be abudat ad prices may all. I a harvest is pr ad
demad is high, prices may rise. T hedge agaist allig prices, cr prducers may
tur t the utures markets. I eect, they use utures ctracts t hedge the sale price
their crps. Prducers may hedge all r part their crp depedig their market
utlk. Prducers are i eect lg the actual, r cash cmmdity. S t hedge theirrisks, they attempt t take a equal but ppsite shrt psiti i the utures market.
b eing uture, producer are ae to traner ome o their ri to another
maret participant.
The price the December cr utures ctract reects the expected price cr
at harvest, as well as the risk assciated with the vlatility the uderlyig cmmdity.
As harvest appraches, i the utures price cr rises, e wuld expect cr prices
t rise i value als. Similarly, i the price cr utures alls, e wuld expect the
cash prices t all.
so how doe thi hep the armer?
The armer sells cr utures t hedge the risk wig r beig lg the cash
cmmdity. I cr prices all, the armer will be able t buy back the utures at a
lwer price. This prt will make up r sme the lsses the armer will icur
whe he sells the cr at harvest. That risk is traserred t the pers wh
buys the utures.
Lets imagie that its March 1. A armer, wh is expectig a crp 100,000 bushels i
nvember, decides t hedge 50% the crp, r 50,000 bushels. By hedgig just 50%
his crp, the armer is limitig, t elimiatig, his expsure t price mvemet.
Eampe 1: Commercia Trader
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CME GrOuP EduCaTION | SECTIon 4
A sigle utures ctract i cr represets 5,000 bushels (127 metric ts). S the
armer will have t sell 10 ctracts t hedge 50,000 bushels. o March 1, cr utures
traded at $6.17 per bushel. Frm March 1 util harvest nvember 1, the price
cr ell by $0.23 per bushel. The armer ca w buy 10 ctracts at $5.94 per
bushel, settig the 10 ctracts he sld at $6.17 per bushel. The 10 utures ctracts
geerated $11,500 i additi t the $5.94 per bushel the armer will receive i the
cash market.
5100
5300
5500
5700
5900
6100
6300
6500
6700
Dec Feb Apr Jun Aug Oct Dec
5940
6170
Farmer e 10 contract
at $6.17 per uhe Farmer u 10 contract
at $5.94 per uhe
Csh
Ftes Position
100,000 Bshels
50,000 Bshels
Initil Vle o Cop 03/01
Initil Vle o Ftes
Csh receive 11/01
Cent Pice o Ftes
Loss
Poft
$617,000 t $6.17/Bshel
$308,500 t $6.17/Bshel
$594,000 t $5.94/Bshel
$297,000 t $5.94/Bshel
$23,000
$11,500
I the armer had hedged 100% o the crop, he woud have oet the price
decine entire. However, he ao woud have given up the opportunit to proft
rom a poie rie in corn price.
Who woud have wanted to u thee contract?
This example bega with the armer sellig 10 cr utures ctracts i March, well
bere the harvest. Ay umber market participats wuld have bee willig t take
the ther side this trasacti. They iclude d prcessig cmpaies attemptig
t hedge their iput csts, cmmdity ud maagers lkig at the price relatiship
betwee varius grai prducts, eergy cmpaies lkig t secure a ample supply
cr r ethal prducti ad speculatrs wh wish t express ad prt rm
their pii the directi the market. Each these grups prvides dieret
isights it the idustry ad plays a itegral rle i discverig a air price.
DEFiNiTiON
PRICE lIMITThe maximum daily price uctuatis a
utures ctract durig ay e sessi, as
determied by the Exchage.
sHORT
oe wh iitially sells either a utures r ptis
ctract. oppsite a lg psiti.
F
UTURESPRICE
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16
Hedging Currenc RiLarge cmmercial eterprises regularly use utures t maage risk, reduce csts ad
leverage wrkig capital. Lets imagie that September 1, a U.S. cmpay agreed
t buy heavy equipmet rm a Germa mauacturer. Accrdig t the terms the
agreemet, paymet 1 milli (eurs) was due up delivery, December 1. Betwee
September 1 ad December 1, the price the eur i relati t th e U.S. dllar will
uctuate. What i the value the eur were t rise? Hw wuld this eect the cst
the machiery? Mre imprtatly, hw wuld it eect the verall prtability the
deal? As yu ca see i the example belw, the value the eur did rise sigicatly
rm 1.3600 t 1.4610, which i tur wuld raise the cst t the U.S. cmpay by
mre tha $100,000.
1.5000
1.4610
1.3600
1.4500
1.4000
1.3500
1.3000
1.2500
Mar May Jul Sep Nov Dec
$1,360,000 $1,461,000
Cot o 1,000,000 in
U.s. doar on sept 1.
Cot o 1,000,000 in
U.s. doar on Dec 1.
T prtect themselves rm this risk, the cmpay culd have:
bought the euro the needed or thi purchae on septemer 1.
This wuld have elimiated ay currecy risk. Hwever, it wuld h ave als tied up
a large amut the cmpays wrkig capital, $1.36 milli r three mthsassumig that the exchage rate at that date was $1.36 per eur.
Or, hedge their epoure to riing price purchaing uture contract.
Buyig utures ctracts, kw as gig lg, is a typical strategy used by cmpaies
that regularly buy reig currecy, acial assets, such as stcks ad bds,
r physical cmmdities.
I this example, the U.S. cmpay chse t prtect itsel i September by purchasig
eight Eur FX utures ctracts. Each ctract represets a uderlyig (dllar)
value 125,000 (eurs). S eight ctracts wuld represet 1 milli (eurs).
This amut wuld cmpletely set the currecy risk assciated with the icreasig
purchase price the equipmet i the value the eur wet up durig this perid.
A uaifed hedger with a uture account i on reuired to put up a
percentage o the u contract vaue (a perormance ond) to u or e the
uture contract.
Euro Fx Future Perormance bond
125,000 per contract
8 contract
= 1,000,000
$5,000 per contract
8 contract
= $40,000
PRICEoFEURoInU.S.
DoL
LARS
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CME GrOuP EduCaTION | SECTIon 4
I this case this date, the U.S. cmpay wuld be required t depsit abut $5,000
per ctract, r $40,000 t hedge the currecy risk assciated with th is deal. Keep
i mid the amut the required perrmace bd is subject t chage based market cditis. Because the price the eur rse, the cmpay had t pay mre
t purchase 1 milli (eurs) December 1. Hwever, this icrease i cst was set
by the prts realized rm beig lg the utures ctracts. By hedgig with utures,
the U.S. cmpay lcked i the price it paid r eurs ad xed the ultimate cst the
equipmet. Keep i mid i durig this perid the dllar stregtheed cmpared t
the eur, the utures psiti wuld have sustaied a lss, but the cst i dllars the
equipmet wuld have declied as well.
I the U.s. compan wa uing euro currenc uture, who wa eing them?
Ay umber market participats might have take the ther side this trade: a
cmpay hedgig agaist a pssible declie i the value the eur, a speculatrlkig t take advatage a pprtuity, r a Eurpea cmpay buyig
prducts i the Uited States. Similar trasactis happe hudreds
thusads times every day.
The pe ad trasparet marketplace prvided by CME Grup has becme the
primary surce price discvery r markets icludig grais, eergy, metal,
currecies, equity idexes ad iterest rates. The dramatic trade vlume i these
markets allws hedgers t reduce risk ad speculatrs t pursue pprtuities
i a extremely liquid marketplace.
Csh
Ftes Position
Cost o Cency, Sept 1
Pice o Ftes, Sept 1
Cost o Cency, dec 1
Pice o Ftes, dec 1
Poft/Loss
Poft/Loss x 8 Contcts
Long 8
$1,360,000
$1.3610
$1,461,000
$1.4611
Net Poft/Loss
$101,000
$101,000
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Being in control o your own destiny is what trading is all about.Its a constant battle, not with the market, but with your inner sel
the struggle to not let your emotions dictate your decisions.
Ultimately, those decisions infuence how well youre doing, and you
are ully responsible or both the highs and lows. kvi Fy Independent trader
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DEFiNiTiON
FRONT-END
olie stware that prvides access t
exchage prducts ad a rder etry
evirmet r yur tradig.
Fr a mre detailed lk at hw utures tradig wrks,
lets llw the experiece Jack, a idividual wh
actively trades stcks ad utures, i additi t
maagig lger-term ivestmets. The example is
ctitius, but true-t-lie r may tdays
active ivestrs.
It is imprtat t rst te that i utures tradig, it is
just as easy t iitiate a trade rm the shrt side by
sellig a ctract as it is rm the lg side. Traders
with a bullish pii the market start their trades by
buyig utures ctracts, while bearish traders start bysellig utures ctracts.
Maret OpinionJack has rmulated a pii the shrt-term
directi the stck market. He eels that stcks are
pised t rally ad sees leadership cmig ut the
large cap stcks. The E-mii S&P 500 utures ctract,
e a amily equity idex prducts rm CME Grup,
gives idividual traders like Jack a simple, highly liquid
ad relatively iexpesive way t place trades based
the directi the verall idex.
Tradig E-mii utures makes sese t Jack. Istead
havig t research the relative value a umber
large cap stcks, he is able t trade a sigle ctract that
represets the value the etire idex. Jack ca trade
the E-mii S&P 500 ctract electrically almst 24
hurs a day durig the busiess week. Jack aticipates a
rally i the S&P 500 u tures price, s he is lkig t buy,
r g lg, the ctract.
oce Jack is ready, he will place his trade usig a lie
tradig applicati (als called a rt-ed) supplied
by his brker. This tradig applicati cects directly
t CME Grups cetralized matchig egie, the CME
Glbex electric tradig platrm, via his brkerage
rm. I additi t prvidig Jack with rder executi,
the rt-ed applicati allws Jack t see the 10 bids
ad ers clsest t the last trade price ad ther trade
irmati i real time. The CME Glbex platrmprvides all market participats, large ad small, with
the same prices ad trade irmati. This gives Jack
cdece that he is cmpetig a level playig eld.
At each price level, aggressive buyers are able t buy at
the best ered price ad mtivated sellers are able t
sell at the best bid price. These trades are electrically
matched, cleared ad reprted t custmers aywhere
i the wrld. I a istat, Jack receives a trade
crmati ad is able t begi mitrig his psiti.
CME GrOuP EduCaTION | SECTIon 4
Eampe 2: Individua Trader
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20
A stp rder is a rder t buy i th e market rises t r abve a specied price (the
stp price), r t sell i the market alls t r belw a specied price. Whe the market
reaches the stp price, yur rder is executed as a market rder, which meas it will be
lled immediately at the best available price. Stp rders are te used as part a risk
r mey maagemet strategy t prtect gais r limit lsses. Fr example, a trader
wh is lg a particular market might place a sell stp belw the curret market level.
The, i the market mves lwer ad reaches the stp price, the traders rder will be
triggered ad the psiti will be set, limitig urther lsses.
Limit rders are cditial up the price yu speciy i advace. I yu are the buyer,
yur limit price is the highest price yu are willig t pay. I yu are the seller, it is the
lwest price at which yu are willig t sell. The advatage a limit rder is that yu
are able t dictate the price yu will get i the rder is executed. Hwever, ulike a
market rder, placig a limit rder des t guaratee that yu will receive a ll. I the
market des t reach yur limit price, r i tradig vlume is lw at yur price level,yur rder may remai ulled. oly the 10 best er r ask price levels are shw.
The cmbied bid ad ask irmati displayed i these clums is te reerred t
as market depth, r the bk rders.
Thi coumn how the numer o contract trader are active oering to
e at the given price ited to the et.
Thi fed how the price o the at competed trade.
Order Entr screenLets take a clser lk at the trade Jack placed. Pictured th e right is a geeric rder
etry scree, similar t several ppular applicatis. Actual rder etry screes vary
smewhat by rt-ed stware vedr ad brker.
This fel ientifes the nme o the tes contct yo e viewing.
This will ppulate the rder etry scree with the apprpriate price irmati. Each
utures ctract has a uique symbl that dieretiates it rm all ther prducts. The
prduct cde als ideties the expirati by mth ad year. Fr a list all prduct
cdes, visit cmegroup.com/product-code-iting.
use this fel to speciy the nmbe o contcts yo wnt to by o sell.
speci the Tpe o OrderThe simplest ad mst cmm type is the market rder. Whe yu place a market
rder, yu agree t either buy r sell at the best available price. Yur bjective is t have
the rder executed as quickly as pssible. I ther wrds, with a market rder yu te
d t speciy a price. The ly irmati yu eed t prvide is 1) the name o the
contract ou want to trade, 2)the numer o contract ou want to tradeand
3) whether ou are uing or eing. Market rders are lled autmatically at the
best available price ad the rder ll irmati is retured t yu immediately.
This colmn shows the pice n the nmbe o contcts tht potentil byes
e ctively biing on. Notice tht only the 10 best bi pice levels e shown.
b
A
C
D
E
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CME GrOuP EduCaTION | SECTIon 4
A
b
D
E
C
DEFiNiTiON
sTOP ORDER
A rder that becmes a market rder whe a
particular price level is reached. A sell stp is
placed belw the market; a buy stp is placed
abve the market. Smetimes reerred t as
stp lss rder.
lIMIT ORDER
A rder that allws the buyer t dee the
maximum price t pay ad the seller the
miimum price t accept (the limit price).A limit rder remais the bk util the
rder is either executed, caceled r expires.
Ay prti the rder that ca be matched
is immediately executed.
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CME GrOuP EduCaTION | SECTIon 4
Cacuating Proft and loAs a day trader, Jacks gal is t ish the day with a psitive prt ad lss, r P&L
statemet. Csequetly, he decides t set his psiti by sellig tw ctracts. I
the E-mii S&P 500 ctract has rise 8 pits sice the time his purchase, hw will
this aect his accut balace? The E-mii S&P 500 ctract h as rise 8 pits, r 32
ticks. Sice e tick is equivalet t $12.50, each ctract Jack hlds has icreased
i value by $400. Jack hlds tw ctracts, s the ttal eect his daily P&L will
be +$800. Util Jack exits the psiti, every tick up r dw represets a chage
$12.50 i the value e ctract. Sice Jack was lg tw ctracts, his trade
was twice as prtable, but i he had bee shrt th se tw ctracts, he wuld
have lst $800.
1435.00
1430.00
1425.00
1420.00
08:30
09:30
10:30
11:30
12:30
13:30
14:30
15:30
16:30
Jack buys 2 contractsat 1,425.00
Jack sells 2 contractsat 1,433.00
E-mini s&P 500 Contract
Change in price = 8 points or 32 ticks (1 point = 4 ticks)
Value of 1 tick: $12.50
Change in P&L: 32 x $12.50 = $400 per contract
Jacks initial position: 2 contracts
Total change: $400 x 2 = $800
E-MInIS&P500PRICE
TIME oF DAY
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How Do I Get started?SECTION 5
oce yu are ready t start tradig utures, it is gd t rst take the llwig
steps yur path t successul tradig:
begin with simuated TradingBere yu begi tradig, it is imprtat t becme amiliar with the markets
yu pla t trade. A simulated tradig accut w ill allw yu t place trades,
cacel rders ad gai valuable experiece while implemetig the ccepts
discussed i this resurce.
Pic Two or Three Maret to Foowand Eperiment with Variou Trading PanA electric tradig simulatr will help t replicate real-wrld tradig
cditis. It is a gd way t becme amiliar with price qutatis,
market termilgy ad the geeral behavir a particular market.T get started usig tradig simulatrs, visit cmegroup.com/tradeim.
Tradig simulatrs are als ered by a umber brkerage rms.
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CME GrOuP EduCaTION | SECTIon 5
Pic the Right ContractThere are may utures ctracts t chse rm. Which es might be right r
yu? Markets have idividual persalities ad are as diverse as the peple wh
trade them. Keep the llwig imprtat characteristics i mid whe chsig
a market t trade:
VoatiitCertai utures ctracts regularly experiece a wider daily tradig rage tha thers
ad are therere csidered t be mre vlatile. This vlatility is a imprtat variable
i determiig r isk ad/r prt pprtuity. Fr example, sybeas have traditially
had a larger daily pr ice rage tha ats. Sme traders preer the mre vlatile ctracts
because the ptetial r prt ca be greater, while the trasactial cst tradig
remais essetially the same. other traders, hwever, d that the least vlatile
ctracts are better suited t th eir particular strategies because higher vlatility meas
the ptetial r lss ca als be greater.
liuiditWhe yu are gettig started, be sure t select prducts that are kw t be highly
liquid. Tradig i active markets where there is eugh vlume r yu t eter ad exit
yur rders withut substatially aectig price will help t esure that yu ca exit a
psiti just as easily as yu eter it. T quickly gauge the liquidity a market, traders
may lk at 1) the ditance etween the et id and a price (ao nown a
the id-oer pread), 2) the numer o order reting in the maret at each id
and oer eveand3) the reuenc with which trade tae pace.
Liquidity ca als be described i terms vlume ad pe iterest. Each uit
vlume represets a cmplete trasacti. Whe e trader buys a ctract ad
ather trader sells the same ctract, that trasacti is recrded as e ctract
traded. ope iterest reers t the ttal umber utures that have t bee set
r ullled by delivery. ope iterest is calculated by cutig the umber pe
trasactis at the ed each tradig sessi. T illustrate, a market with pe
iterest wuld have at least e market participat wh chses t remai lg e
ctract, as well as ather participat wh chses t maitai the settig shrt
psiti at the ed the tradig day. Vlume ad pe iterest are reprted daily ad
are used by traders t determie the level activity i a market r a give day r a
price mvemet.
Sme traders csider price mves that ccur durig perids lw vlume t be
less imprtat due t the apparet lack participati by larger market participats.
Hwever, the price mvemet higher vlume suggests that a mre substatial
market evet has take place. Traders wh regularly mitr average daily vlume
ad pe iterest may gai a iterestig perspective it a particular market. It
is geerally assumed that markets characterized by high pe iterest ad lw
daily vlume have substatial cmmercial participati. This is due t the act that
cmmercial hedgers ted t hld pe psitis r lger-term hedgig purpses.
Cversely, high-vlume markets with lw pe iterest ted t be csidered
mre speculative i ature.
DEFiNiTiON
VOlUME
The umber ctracts i utures r ptis
utures trasacted durig a specied
perid time.
OPEN INTEREsT
The ttal umber utures ctracts lg r
shrt i a delivery mth r market that has
bee etered it ad t yet set r ullled
by delivery, als kw as ope Ctracts r
ope Cmmitmets. Each pe trasacti has
a buyer ad a seller, but r calculati
pe iterest, ly e side the
ctract is cuted.
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26
Contract sizeChse a ctract that is apprpriately sized r yur accut ad yur particular
tradig style. I sme cases, yu ca eve chse betwee the stadard size ctract
ad a smaller versi the same ctract kw as a E-mii. Examples iclude the
ppular E-mii S&P 5 00 ctract, the E-mii nASDAQ-100 ad the E-mii Dw. E-mii
ctracts are 100% electrically traded, usually very liquid, ad because their
smaller size, require a lwer iitial margi r perrmace bd tha their istitutially
sized cuterparts. There are als E-micr ctracts, which are eve smaller i size.
Fr example, there are micr-sized ctracts available r gld utures, as well as
several the FX prducts. These are tailred specically r the idividual trader.
Perormance bondThe perrmace bd required t trade a particular prduct uctuates ad is a
ucti a ctracts value ad price vlatility. While yu may be cmrtable i
tradig vlatile markets, the size yur accut relative t th e value the ctractsyu trade ad the perrmace bd required t d s shuld be csidered whe
selectig which utures ctracts t trade.
seect a Good broerBere placig yur rst trade, yu eed t pe a accut with a registered utures
brker, wh will maitai yur accut ad guaratee yur trades. I the utures
busiess, brkerage rms are kw as either a utures cmmissi merchat (FCM),
r a itrducig brker (IB). May securities brkers are als registered t deal i
utures. Yu may wat t see i yur curret brker ca prvide yu with this service.
Wrkig with a kwledgeable brker ad quality rm ca play a imprtat rle i
yur lg-term success. Ctact several brkers util yu d the right cmbiati
cst ad service.
Als, be sure t check the backgrud ay ptetial brker r rm with the natial
Futures Assciati (nFA). The nFA directly supervises the activities all utures
brkers ad prvides backgrud irmati all its members. The nFA prvides
the cmplete registrati histry, as well as cmplaits, es ad suspesis r all
registered brkers ad rms. All members the nFA must bserve high levels
cduct that exted beyd the legal requiremets. Fr mre irmati,
visit na.uture.org.
DEFiNiTiON
FUll-sERVICE bROkERs
Full-service brkers prvide guidace, research
ad supprt, but geerally charge highercmmissis t d s.
DIsCOUNT bROkERs
Discut brkers leave all the tradig decisis
t yu. Depedig the level supprt ad
service ered, they are usually able t charge
less t execute yur trades.
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CME GrOuP EduCaTION | SECTIon 5
DEFiNiTiON
FUTUREs COMMIssION MERCHANT (FCM)
A idividual r rgaizati that slicits r
accepts rders t buy r sell utures r ptis
utures ctracts ad accepts mey r
ther assets rm custmers i cecti with
such rders. A FCM must be registered with
the CFTC.
INTRODUCING bROkER (Ib)
A rm r idividual that slicits ad accepts
rders t buy r sell utures r ptis utures ctracts rm custmers, but des
t accept mey r ther assets rm such
custmers. A IB must be registered with
the CFTC.
NATIONAl FUTUREs AssOCIATION (NFA)
The nFA is a idepedet, sel-regulatry
rgaizati r the U.S. utures idustry with
ties t ay specic marketplace.
Its just a matter o sticking withthe game plan, knowing how much
size youre going to trade, how many
contracts youre going to trade,
and knowing your risk. Dont getemotionally involved or tied to a trade.
When I started to act on my intuition,
I started to be a little bit more
aggressive, and it started to go my
way. I looked around and said Youknow, I can do this. I can be apart o this.
Suz Blvic Independent trader
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28
Determine the Right size or your Trading AccountSped ample time studyig the markets yu ited t trade. Make sure yu u derstad
the value the ctract ad the a cial impact ay strategy yu implemet.
Crm that yu will be able t meet the perrmace bd requiremets yu
may ecuter durig rmal market cditis. The uds yu trade shuld be
discretiary, separate rm ay savigs yu have set aside r cllege, retiremet
r emergecies. I ther wrds, ask yursel i yu ca ard t lse whatever uds
yu expse t risk i yur utures accut. Capitalize yur accut with eugh uds
s yu ly risk a small prti ay e trade. This will allw yu t cus the
prcess tradig rather tha simply mitrig the balace yur accut.
set Defnite Ri Parameter beore you Trade
Dee yur expectatis by settig bjectives ad limits t the risk that yu are willigt take. I yu d the wrst-case sceari t be uacceptable, the lk r ather
trade with risk parameters that better cicide with yur eeds. Determie exactly hw
much a lss yu are willig t accept. Yu ca express this as a pit value r a dllar
amut. By establishig yur risk limits uprt, yu set yur expectatis ad lesse
the pssibility emtis dictatig yur decisis. The easiest way t let a lsig
trade get yu it truble is by t settig specic maximum lss parameters at
the begiig.
Have a Trading PanBere yu actually eter it a trade, develp a pla t guide yur decisi-makig
prcess. Yur pla shuld be based careul aalysis the markets yu ited t
trade. The llwig are sme the issues yu will wat t evaluate. What is yur
bjective r the trade? T capitalize a aticipated reprt, chart patter r market
idicatr? T participate i a lger-term tredig market? Hw much risk is i the
trade ad hw much risk are yu willig t accept? I the trade turs agaist yu,
at what pit will yu liquidate the psiti? What types rders will yu use? Ca
yu have prtective stp lss rders restig i place? Hw will yu mitr market
develpmets ad price mvemets? Visit cmegroup.com/gettingtartedr
tutrials that may be useul i develpig yur tradig pla.
stic to your PanAs the sayig ges, ailig t pla is plaig t ail. A key elemet that dieretiates
may successul traders rm the usuccessul traders is disciplie. Successul tradershave emtis like everye else, but they d t let their emtis get i the way
makig gd tradig decisis.
Fr istace, whe the market mves agaist a trader ad passes thrugh a previusly
established exit pit, a gd trader will exit the trade ad accept the lss. This des t
mea that the trader is happy abut the lss, but he r she uderstads that havig a
gd pla is ly hal the battle. The ther hal is stickig t it. Yu ca search the lie
bkstre at cmegroup.com/ootore r additial readig material this tpic.
Discretionary
EmergenciesSavings
Retirement
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CME GrOuP EduCaTION | SECTIon 5
DiveriRather tha risk yur etire tradig capital t a sigle psiti right the bat, it is
prudet t take smaller psitis, ivlvig several trades r ctracts. At the same
time, be careul t t spread yursel t thi. Depedig the markets ad the
apprach, yu may have a difcult time executig yur strategy while mitrig a
large umber psitis. Whe yu are just gettig started, it is imprtat t remve
as may distractis as pssible.
know your PoitionLast, but deitely t least, it is yur jb t keep track yur psitis at all times.
Fast-mvig markets ad perids high vlatility ca test eve the mst seased
vetera. Keep a detailed jural all yur trasactis ad have backup prcedures i
place i the evet that yur Iteret cecti ges dw. Kw yur brkers plicy
hw t place rders ver the phe ad wh t ctact shuld yu have a questi
abut yur psiti. May brkers will assist yu i viewig the trasactis thatappear yur statemet. At the ed the day, hwever, it is yur respsibility t
kw yur psiti.
Eve seased traders shuld ctiue t educate themselves
the markets. T stay up-t-date with the latest develpmets
ad ew learig pprtuities, be sure t check back regularly
at cmegroup.com r ur daily market cmmetary, lie
tutrials, strategy papers ad ew prduct erigs. Yu ca
als prvide istat eedback r the materials yu d the
site. We are always iterested i hearig rm ur custmers
hw we ca imprve ur erigs.
Fr mre irmati utures, please ctact
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r312 930 1000.
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Future quizSECTION 6
QuESTiONS
1.) Which tpe o contract are echange-traded in the U.s.?
A. Frward ctracts
B. Spt ctracts
C. Futures ctracts
D. Deerred ctracts
2.) An individua uer and eer o oean oi ma commit to a
tranaction i month rom now. Thi i tpica caed:
A. Buy/Sell ctract
B. Surce ctract
C. Frward ctract
D. Listed ctract
3.) What are the main economic unction o echange-tradeduture contract?
A. Allw idividuals t participate i tradig a level playig eld
with big istitutis.
B. Allw r the traser risk ad prvide a price discvery mechaism r
the prducts represeted by the ctracts tradig at a exchage.
C. Facilitate ivestmet i cmmdities ad ther acial istrumets
versus stcks.
D. oer a way t use leverage r greater ivestmet returs.
4.) liuidit can e defned a the aiit to tranact uic and ecient
without a utantia eect on the price. Which o the oowingtranaction woud e the lEAsT iuid?
A. Buyig r sellig a huse
B. Buyig r sellig a car
C. Buyig r sellig a E-mii S&P 500 utures ctract
D. Buyig r sellig a U.S. silver dllar
5.) A armer want to hedge hi entire etimated 75,000 uhe corn crop. It
i ate June and the crop wi e harveted septemer. The Decemer
corn contract i trading at $7.00/uhe. The armer ee thi a a
proftae price. To hedge the entire crop at the et price, the
armer houd:
A. Sell a December Cr rward ctract at $6.25/bushel.
B. Purchase 15 December Cr ctracts at $7.00/bushel.
C. Sell 25 December Cr ctracts at $7.00/bushel.
D. Sell 15 December Cr ctracts at $7.00/bushel.
6.) Tpica, trading euitie (toc) on margin reuire at eat 50% o
the purchae price. Tpica, trading uture reuire a perormance
ond (margin) o what percent o the vaue o the contract?
A. 3 12%
B. 50 75%
C. 40%
D. 35 50%
7.) Future trading in the U.s. i reguated :
A. The Securities ad Exchage Cmmissi (SEC)
B. The Federal Reserve (FED)
C. The Cmmdity Futures Tradig Cmmissi (CFTC)
D. The U.S. Trade ad Tari Bard (UTTB)
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CME GrOuP EduCaTION | SECTIon 6
QuESTiONS
8.) A trade cearing and traner o trading proft and oe or account
trading CME Group product are monitored and adminitered :
A. U.S. ofce Baks ad Thrits
B. The clearig huse the U.S. Federal Reserve Fud Traser ofce
C. CME Clearig
D. Majr U.S. mey ceter baks
9.) Trading account und hed Future broer (Future Commiion
Merchant FCM) are:
A. Cmmigled with existig uds custmers tradig the same prducts. B. Segregated accrdig t which cmmdity the custmer has traded.
C. Cmpletely segregated by idividual custmer.
D. Placed i a sigle, aggregate accut the brker.
10.) specuator awa tae the other ide o trade made
hedger.
A. True
B. False
11.) buing or eing at the maret i uua the et wa toenter into a poition.
A. True
B. False
12.) stop order can on e ued to eit a maret poition.
A. True
B. False
13) Price move imit remain the ame regarde o maret condition.
A. True
B. False
14) Mar-to-maret ettement o uture poition i aed on end o
trading da or trading eion price.
A. True
B. False
15) What actor are important when eecting a contract to trade? A. Vlatility
B. Ctract size (dllar value the ctract)
C. Liquidity
D. Hurs the ctract is traded
E. B & C
F. All the abve
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ANSwEr kEy
1.) C. Futures ctracts. Frward r deerred ctracts are betwee tw r mre
idividual (r crprate) etities ad carry with them bligatis each party.
Spt ctracts are similar bligatis with a immediate time rame. ne these types ctracts are exchage-traded, ad all carry cuter-party risk
ailure t perrm. Futures ctracts are exchaged-traded ad are backed
by acial saeguards i place at the clearig huse.
2.) C. Frward ctract. Agai, this type party-t-party agreemet is t a
exchage-traded ctract.
3.) b. The ther chices are beets, but t the primary uctis.
4.) A. Buyig ad sellig h mes are very illiquid trasactis. There are umerus
actrs r this, icludig substatial trasacti csts (aget ees), difcultyi ascertaiig a accurate market price ad cmplicatis i veriyig the
capability the buyer t cmplete the trasacti.
5.) D. This will lck-i the ptetial icme r the armer based market
cditis at the time the hedge is put i place. Keep i mid i the price
cr rises betwee late Jue ad nvember, the armer will sacrice ay
urther ptetial prt. But i the market declies, the sale price
$7.00/bushel is lcked i.
6.) A. Perrmace bd (margi) rates are set by CME Clearig based
several actrs ad are subject t chage. Please reer t
cmegroup.com/cearing/marginr curret irmati.
7.) C.
8.) C.
9.) C. Custmer uds are segregated by CME Clearig ad are treated as
belgig t the custmers the clearig member (FCM).
10.) Fae. Because tradig CME Grup utures ctracts are aymus
trasactis cleared by CME Clearig, it is impssible r participats t kw
what kid trasacti (i.e. hedge, speculati, set) is the cuterpartyt their trade.
11.) Fae. There are may ways t eter r exit markets, which are reerred t as
rder types. Fr a cmplete list, reer t order Types at
cmegroup.com/education/goar.
12.) Fae. All rder types ca be utilized t eter r exit a market psiti.
13.) Fae. Limits are set by the Exchage ad h elp t regulate dramatic price
swigs. Whe a utures ctract settles at its limit price, the limit may be
expaded t acilitate trasactis the ext tradig day. This may helputures prices retur t a mre rmal tradig rage.
14.) True.
15.) F.
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CME GrOuP EduCaTION | SECTIon 1
Futures tradig is t suitable r all ivestrs, ad ivlves the risk lss. Futures are a leveraged ivestmet, ad because ly a percetage a ctracts value is required t trade, it is pssible t lse mre tha the amut mey depsited r a utures
psiti. Therere, traders shuld ly use uds that they ca ard t lse withut aectig their liestyles. Ad ly a prti thse uds shuld be devted t ay e trade because they cat expect t prt every trade. All reereces t ptis reer t
ptis utures.
CME Grup is a trademark CME Grup Ic. The Glbe Lg, CME, Chicag Mercatile Exchage ad Glbex are trademarks Chicag Mercatile Exchage Ic. CBoT ad the Chicag Bard Trade are trademarks the Bard Trade the City Chicag, Ic.
new Yrk Mercatile Exchage ad nYMEX are registered trademarks the new Yrk Mercatile Exchage, Ic.
The irmati withi this brchure has bee cmpiled by CME Grup r geeral purpses ly. CME Grup assumes respsibility r ay errrs r missis. Althugh every attempt has bee made t esure the accuracy the irmati withi this brchure,
CME Grup assumes respsibility r ay errrs r missis. Additially, all examples i this brchure are hypthetical situatis, used r explaati purpses ly, ad shuld t be csidered ivestmet advice r the results actual market experiece.
All matters pertaiig t rules ad specicatis herei are made subject t ad are superseded by fcial CME, CBoT ad nYMEX rules. Curret rules shuld be csulted i all cases ccerig ctract specicatis.
The ctet this marketig cllateral shuld t be take as a recmmedati r edrsemet t buy sell r retai ay specic prduct, security ivestmet r ther service r des it cstitute a Prspectus. The ctet this presetati is iteded slely r the
use Eligible Cuterparties ad Pressial (-retail) Cliets as deed uder Fiacial Services ad Markets Act 2000 ad circulati must be restricted accrdigly. Ptetial users the services herei described are recmmeded t take idepedet advice.
This cmmuicati is issued by CME Marketig Eurpe Limited. CME Marketig Eurpe Limited is authrised ad regulated by the Fiacial Services Authrity i the Uited Kigdm r the cduct ivestmet busiess.
Cpyright 2011 CME Grup. All rights reserved.
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