1. THE SUBJECT OF THE AGREEMENT
1.1. Each party to the contract is obliged to periodically pay sums of money depending on the change in the price (prices) and (or) value (values) of the underlying asset and (or) the occurrence of a circumstance that is the underlying asset.
Options:
a) Party 2 also undertakes, in the event of a demand from Party 1, to transfer the underlying asset to it, including by concluding a futures agreement (contract) by the party (parties) and (or) the person (persons) in whose interests the futures contract was concluded agreement (contract), agreement for the purchase and sale (supply) of goods;
b) the parties are also required to enter into an agreement that is a derivative financial instrument and constitutes the underlying (underlying) asset.
1.2. Underlying asset: securities (currency, commodity): ____________________.
1.3. Range of price changes of the underlying (underlying) asset for premium payment:
1.3.1. If the price increases by at least _____ points (percent, etc.), a premium in the amount of _____ rubles is paid by Party 2 (or: Party 1).
1.3.2. If the price increases over _____ points (percent, etc.), a premium in the amount of _____ rubles is paid by Party 2 (or: Party 1).
1.3.3. If the price decreases by ____ points (percentage, etc.), a premium in the amount of _______ rubles is paid by Party 2 (or: Party 1).
1.3.4. If the price decreases by at least _____ points (percent, etc.), a premium in the amount of _____ rubles is paid by Party 2 (or: Party 1).
1.4. Range of price changes of the underlying (underlying) asset for repurchase (or: sale):
1.4.1. Increase in price by at least ______ points (percent, etc.).
1.4.2. Price increase over ________ points (percentage, etc.).
1.4.3. Reducing the price by __________ points (percent, etc.).
1.4.4. Reducing the price by at least ______ points (percent, etc.).
Type of agreement:
1.5. A reliable source of information about price changes under this agreement is: ____________________. The data is presented in the form _________________________.
1.6. If the reported information is not properly confirmed to be true, it is considered unreliable and is not a basis for payments (redemption, sale).
1.7. The right to payment (redemption, sale) is valid for ___ hours from the occurrence of a certain event, regardless of its subsequent change.
1.8. A change in circumstances during the period agreed upon in clause 1.7 of this agreement to the opposite is the basis for withdrawing your demand for payment (redemption, sale).
1.9. If prices remain unchanged or prices change without exceeding established limits during the term of this agreement, Party 1 has the right to: ______________________________.
1.10. Derivative documents are issued within ____ hours from the moment the corresponding request is submitted.
2. PAYMENT PROCEDURE
2.1. The premiums provided for in this agreement are paid within ___ hours from the moment the moment agreed upon by the parties is confirmed by the document, based on the invoice issued by the other party.
3. RIGHTS AND OBLIGATIONS OF THE PARTIES
3.1. When the specified event occurs, the party interested in payment (purchase, sale) is obliged to provide the other party with properly executed documents.
3.2. Each party has the right to receive from the other party information relating to its financial stability that is not a trade secret.
3.3. Each party has the right to verify any information communicated to it related to this agreement.
4. RESPONSIBILITY OF THE PARTIES
4.1. The party that fails to fulfill or improperly fulfills its obligations under this agreement is obliged to compensate the other party for losses caused by such failure, including lost profits.
4.2. For late payment (redemption, sale), the violating party shall pay the injured party a penalty in the amount of ___% of the unpaid amount for each day of delay.
4.3. Collection of penalties and interest does not relieve the party that violated the contract from fulfilling obligations in kind.
4.4. In cases not provided for in this agreement, property liability is determined in accordance with current legislation Russian Federation.
4.5. The party that provided false information at the request of the other party shall pay it a fine in the amount of ______ rubles.
5. CHANGES TO THE AGREEMENT
5.1. Party 1 can be replaced by another person only with the consent of Party 2.
5.2. Party 1 has the right to replace the third party with another person with subsequent notification to Party 2.
5.3. In the event of the commencement of the liquidation procedure by any of the parties, it is obliged to fulfill all its obligations under this agreement ahead of schedule.
6. TERM OF THE AGREEMENT
6.1. Genuine contract concluded for a period of ________ and comes into force from the moment of signing.
6.2. The term of the agreement may be extended by agreement of the parties.
6.3. In the event of demands for payment (redemption, sale), the contract is automatically extended until their completion.
7. END, TERMINATION OF THE AGREEMENT
7.1. The Agreement is valid until the expiration of the period specified in clause 6.1. Obligations arising during the validity period of the contract are subject to fulfillment regardless of its expiration.
7.2. The contract may be terminated early by agreement of the parties.
7.3. Termination of the contract does not relieve the parties from liability for its violation.
8. PRIVACY
8.1. The terms of this agreement, additional agreements to it and other information received in accordance with the agreement are confidential and are not subject to disclosure.
9. DISPUTE RESOLUTION
9.1. All disputes and disagreements that may arise between the parties on issues that are not resolved in the text of this agreement will be resolved through negotiations based on the current legislation of the Russian Federation.
9.2. If controversial issues are not resolved during negotiations, disputes are resolved in court in the manner established by the current legislation of the Russian Federation.
10. ADDITIONAL TERMS AND CONDITIONS
10.1. Additional terms actual agreement: ____________________.
10.2. Any changes and additions to this agreement are valid provided that they are made in writing and signed by the parties or duly authorized representatives of the parties.
10.3. All notices and communications must be given in writing.
10.4. In all other respects that are not provided for in this agreement, the parties are guided by current legislation.
10.5. The agreement is drawn up in two copies - one for each of the parties.
10.6. Addresses and payment details of the parties:
Side 1: ________________________________________________
___________________________________________________________
Side 2: ________________________________________________
___________________________________________________________
___________________________________________________________
SIGNATURES OF THE PARTIES:
Side 1: ________________________
Side 2: _________________________________
Options and futures belong to the so-called derivatives. A financial instrument is called a derivative if its value depends on the price of some underlying asset (commodity, currency, shares, bonds), interest rate, stock index, temperature or other quantitative indicator.
A futures transaction is carried out on the basis of futures contracts. A futures contract is a standard exchange contract purchase and sale financial asset at a certain point in time in the future at the price established by the parties to the transaction at the time of its conclusion.
The purpose of futures trading is not to buy and sell the underlying asset, but to obtain a positive price difference from the purchase and sale of futures contracts. Futures trading is primarily speculative in nature.
Understanding futures contract is best achieved by comparing it with a forward contract. Futures contracts are the same forward contracts with a number of additional properties or distinctive features. The main differences between futures contracts and forward contracts and others are exchange types contracts are shown in Table 6.
So, distinctive features futures contract are:
1. Exchange character. A futures contract is an exchange contract that is developed on a given exchange and can only be traded on that exchange. An over-the-counter futures contract with features of a futures contract is called a forward contract.
2. Standardization of the contract according to all parameters (name of the stock asset, volume, execution date, etc.), except price. The contract price is set by the parties to the transaction at the time of its conclusion.
3. The exchange is a guarantor of fulfillment of obligations under the contract for the parties to the transaction, i.e. in the event of failure to fulfill obligations under a transaction by one of its participants, the exchange will fulfill its obligations.
4. A special mechanism for concluding, handling and executing transactions. The consequence of this was the specialization of some stock exchanges exclusively in working with futures contracts, so such exchanges were called futures exchanges.
Futures contracts can be divided into two main groups: commodity and non-commodity futures. The group of commodity futures includes: agricultural products, industrial raw materials, oil and petroleum products, precious and non-ferrous metals, etc. The underlying assets of non-commodity futures are securities, currencies, stock market indices, interest rates, etc.
Today in Russia there are futures only for securities, currencies and indices.
The main trading of futures contracts is carried out on the largest trading platforms Russia:
- section derivatives market MICEX;
- futures and options market on the RTS (FORTS).
The MICEX Derivatives Market Section organizes trading in futures for the US dollar and euro, and for shares (OJSC Lukoil, OJSC Surgutneftegaz, RAO UES of Russia).
FORTS market in RTS system offers trading participants the widest range of futures contracts, the underlying assets of which are shares Russian issuers(RAO "UES of Russia", OJSC "Gazprom", OJSC "Lukoil", OJSC "Rostelecom", OJSC "Surgutneftegaz", OJSC "MMC Norilsk Nickel", OJSC "Sberbank of Russia"), RTS index, bonds and foreign currency.
Standardizing the volume of the underlying asset for which the futures contract is concluded allows each party to the transaction to know in advance how much of the asset is subject to purchase and sale (for example, a futures contract for the US dollar exchange rate in the RTS is $1,000). As a result, futures trading is trading of a whole number of contracts, and the purchase and sale of assets whose volume is not a multiple of the established standard lot is impossible.
Any futures contract has a limited life (most futures are quarterly contracts that expire in the months of March, June, September, December).
During this period, futures can be purchased and sold. On the date specified in the contract, delivery of the underlying asset and final cash settlements on it. Exchange trading stops several days before the delivery date. Since the exchange trades futures with different expiration dates every day, a special exchange calendar is created, which reflects the execution dates of all traded futures contracts.
There is a generally accepted style of naming futures contracts. On the RTS derivatives market, 4-symbol tickers are used, consisting of the code of the underlying asset (2 characters), month of execution (1 character), year of execution (1 character). For example, the ticker ESU5 means “contract for shares of RAO UES of Russia with quotes in rubles and execution on September 16, 2005.”
The initial purchase or sale of a futures contract is called opening a position. In this case, buying a contract is called opening a long position (long futures), and selling a contract is called opening a short position (short futures).
To buy a futures contract means to undertake an obligation to accept the primary asset from the exchange within a predetermined period, paying for it the price set at the time the contract was concluded.
To sell a futures contract means to undertake the obligation to deliver the primary asset to the exchange when the contract expires and receive funds for it corresponding to the sale price of this contract.
The seller or buyer has the right at any time before the expiration of the futures contract to liquidate their obligations under it by concluding a transaction opposite to the previously made one, or an offset transaction. When conducting an offset transaction, the need for delivery of the underlying asset disappears, since the position under the contract is buried. Therefore, at the expiration of the contract, only the difference in prices (between the futures price at which the contract was concluded and the current price at the time of delivery) is paid. As a result, futures contracts are rarely executed - less than 2 percent of all completed transactions end in actual delivery of the asset.
Futures typically trade at a premium to the stock price.
Futures contract price in general case will be calculated using the following formula:
where Tsf is the cost of a futures contract for an exchange asset;
Tsa is the market price of the underlying asset in the physical market;
P - bank interest on deposits;
D - the number of days until the expiration of the futures contract or its closure.
The situation when prices for futures transactions exceed the prices for a real asset, and the quotes of distant positions are higher than the quotes of nearby positions is called “contango” (from the English contango or normal market), the inverse ratio of prices in the market is called “backwardation” (from the English backwardation or inverted market).
Since futures holders do not have the right to collect dividends, the futures price must be adjusted to the existing value of dividend payments expected before expiration. That is, if an exchange asset generates a certain income, for example a dividend on a stock, then this income is subtracted from the bank interest rate and the formula takes the following form:
where Pa - the average size dividend on a stock or interest on a bond.
When a large dividend payment is approaching or if the underlying asset is difficult to borrow, the futures price may be less than the actual cash price.
Each futures contract between a seller and a buyer is converted into two new contracts: between the exchange (clearing house) and the seller and between the exchange and the buyer. The clearing house acts as a third party in all futures transactions, is the basis for all settlements under contracts, and is designed to ensure financial stability futures market, protection of client interests, control over exchange operations.
To ensure all settlements under contracts, the clearing house collects a guaranteed deposit (margin) from the parties to the transaction, the amount of which is determined based on the market characteristics of the asset for which the contract is concluded. On futures market There are three types of margin.
Initial margin is the deposit made by the buyer and seller of a contract for each open position. It ranges from several to tens of percent of the value of the underlying asset. The initial margin is calculated using the formula:
M = Tsk x Pm / 100, (9)
where M is the amount of the initial margin;
Tsk is the price of a futures contract on the exchange market;
PM - the percentage rate of the initial margin.
Variation margin is the amount calculated daily based on the results of trading for each open position that the buyer or seller contributes to clearing house. The margin is debited from the account or credited to the trading participant's account.
Calculation of variation margin on the day of opening a position is carried out according to the formula:
Mn = a x (Tsk - Tso), (10)
where Mn is the amount of variation margin; a = - 1 if the contract was sold, +1 if the contract was bought;
CC - the quoted price of the contract for this trading session;
Tso is the contract value at the opening price.
If Mn > 0, then the owner of the open position has potential profit, if Mn< 0 - убыток.
Calculation of variation margin for previously opened positions that were not closed on a given day:
Mn = a x (Tsk1 - Tsk0), (11)
Tsk1 - quoted price of the contract for this trading session;
Tsk0 - the quoted price of the contract on the previous trading day.
Calculation of profit (loss) for a position closed after a certain period or upon execution of a contract:
D = a x (Tsk - Tso) + Mn, (12)
where a = - 1 if the contract was sold, +1 if the contract was bought;
TsK - the quoted price of the exchange on the day of closing the contract or its execution;
Tso - the closing price of a position under a contract or the quotation price of the exchange of the previous day in the event that the contract is due to be executed;
Mn - accumulated variable margin for a given open position until the day of its closing or execution.
Maintenance margin is the minimum deposit required to maintain a position. If, in the event of an unfavorable price change, the margin drops to this level, the position is automatically closed.
Apart from the peculiarities of working with margin, trading futures contracts is similar to trading stocks. For professional players, speculation with futures is much more attractive compared to trading with other instruments. This is explained by the fact that the use of futures contracts allows for transactions with high profitability, low costs and minimal investment of funds: a margin on futures of 15% essentially means 5-6 times the leverage, there are no depository costs, and low exchange fees.
However, futures trading is a risky business. Risks are associated with the need to maintain the required amount of funds to hold a futures position. The exchange may require additional funds to be deposited in a relatively short period of time in the following cases:
- when moving market price futures in the opposite direction to the desired direction - the variation margin will be debited from the speculator’s account daily;
- if volatility in the market increases, the exchange may, in accordance with the established procedure, increase the requirements for contract guarantees.
You can speculate on the price dynamics of the same futures contract, as well as on the difference in prices of contracts that differ in standard parameters: execution dates, types of underlying assets. You can speculate on the difference in prices of identical contracts on different exchanges, on the difference in prices of the physical and futures markets.
The success of speculative operations depends on a properly developed speculation strategy, accuracy of price analysis and forecasting, and the ability to effectively manage capital. Before entering into an operation, an acceptable combination of profit and risk should be established.
The most typical strategies in the futures market are the following:
1. Opening a long or short position in anticipation of a subsequent change in the futures price is a common speculative strategy: buy lower, sell higher, or vice versa, first sell a futures contract and then buy it back at a lower price.
For example, a speculator believes that the shares of the ABC company are overvalued and decides to sell short 20 futures on the stock price of the ABC company at a price of 4,550 rubles. per contract (1 contract = 1000 shares).
Thus, to carry out the operation it was necessary Money in the amount of 9282 rubles.
Seven days later, shares of the ABC company were quoted at a price of 4,050 rubles. per share, and the speculator decided to close the position by buying futures contracts on the ABC company stock price with the same expiration date.
The return on the transaction is 105 percent of the initial investment.
2. Purchase (sale) of a futures contract with one delivery date and simultaneous sale (purchase) of the same contract with a different delivery date.
The basis of this strategy is that the prices of futures contracts with different expiration dates will not change at the same rate. For example, if the price of a contract with a near delivery month, for some reason, increases faster than the price of a contract with a distant delivery month, then the strategy is to buy a contract for a near term and sell it for a long term, and then, when the price for the near month will increase more than for the distant one, sell the contract for the near month and buy for the distant one. As a result, the increase in revenue under the contract with the near delivery month will cover the loss under the contract with the distant delivery month.
The opposite strategy occurs if the price of a futures contract with a distant delivery date increases faster than that of a future contract with a near-term delivery date. In this case, it is necessary to simultaneously: buy a contract with a long-term delivery date and sell the same contract with a short-term delivery date.
3. Purchase (sale) of a futures contract on one exchange and sale (purchase) of the same futures contract (that is, for the same asset with the same expiration date) on another exchange. This strategy is based on differences in price dynamics on different exchanges.
Looking at this example, one could say that there was no need to carry out such a strategy - it would be easier to buy a futures contract on exchange A and, after waiting a month, sell it on the same exchange, making a profit of 0.30 rubles per dollar. But in in this case it's all about risk. In fact, there are no guarantees that price dynamics will be exactly like this.
If the price of a futures contract were to decline on both Exchange A and Exchange B, then the investor would receive a loss on Exchange A. And since with such a strategy he plays on two exchanges at once, his loss on exchange A would be fully or partially compensated by the profit from the contract on exchange B.
4. Purchase (sale) of a futures contract for asset A and simultaneous sale (purchase) of a contract for asset B, while it is known that the price of asset A is quite closely related to the price of asset B. This usually refers to futures contracts for different types bonds (state, municipal bonds, short-term and long-term bonds). The direction of changes in prices for interrelated assets is usually the same, but the degree of influence is different, and, consequently, changes in their prices will differ.
Thus, using various strategies, professional players are able to successfully speculate in futures contracts. However, in addition to speculation, futures are more often used for hedging transactions.
If speculation is aimed at making a profit from the difference in the prices of exchange assets in an amount directly proportional to the level of risk, hedging is aimed at reducing the market risk of an unfavorable change in the price of an asset.
Exchange trading participants who engage in hedging are called hedgers. In fact, in practice, every speculator, to one degree or another, insures himself by hedging, and the hedger, accordingly, is never against receiving additional profit if price dynamics are favorable to him.
The essence of hedging: a market participant takes directly opposite positions in the futures and physical markets at any given time. If a trader is a buyer in one market, he must take the position of a seller in another market, and vice versa.
There are short hedges (selling hedging) and long hedges (buy hedging).
Hedging with a purchase means entering into a futures contract to purchase it in order to minimize the risk of loss if prices rise in the future.
Sales hedging is carried out in order to minimize the risk of a price decrease when making deliveries in the future.
Situation 1 (hedging with a purchase).
An entrepreneur wants to buy dollars in a month, which today cost 31.50 rubles per dollar. He believes that in a month the dollar exchange rate will rise. To reduce his possible losses from such growth, he buys a futures contract with execution in three months at a price of 31.70 rubles per dollar. In a month, it’s time to buy dollars. Their rate actually increased on the physical market to 31.70 rubles per dollar, and on the futures market to 31.90 rubles per dollar (the market believes that the dollar exchange rate will further increase over the remaining 2 months).
In this case, the entrepreneur buys dollars on the physical market at a price of 31.70 rubles per dollar, and sells a futures contract at a price of 31.90 rubles per dollar. When buying dollars, he overpays 0.20 rubles per dollar compared to the situation a month ago. When selling a futures contract, he makes a profit of 0.20 rubles for every dollar (bought at 31.70, sold at 31.90), as a result, the entrepreneur compensated for the increase in price on the physical market with profit on the futures market, and his final purchase price was dollars remained at 31.50 rubles per dollar.
If the price on the physical market had risen by more than 0.20 rubles, then the hedger would have been able to compensate with the profit from the futures contract only part of the increase in the market price. But still, this is better than if his risk was equal to the entire value of the price increase on the physical market.
If the price on the physical market had fallen compared to the original date, the hedger would have bought dollars cheaper than expected and thereby saved some amount of his investment. However, most likely the price in the futures market would also change, and therefore the hedger would suffer a loss in an amount close to the amount of money saved in the physical market.
If there were multidirectional price movements in the physical and futures markets, then in one case the hedger could make big money, and in the other lose big. That is, if prices on the physical market fell for some reason (for example, by decision of the Central Bank), and continued to rise on the futures market, then the hedger would be able to buy dollars cheaper than a month ago, and by closing his contract, make a profit on the futures market.
But if prices on the physical market increased, and for some reason decreased on the futures market, then the hedger must buy the currency at a higher price on the physical market and close the futures contract at a loss.
Situation 2 (hedging by sale).
Suppose an investor has 250,000 shares of ABC Company in his portfolio, and conclude that their prices will fall. He cannot sell these papers, because... they act, for example, as collateral. In order to hedge against a possible depreciation of his shares, he can sell short 250 futures for ABC shares, whose execution occurs close to the moment the securities are “released” from collateral. The investor makes an initial margin of 500 rubles per contract (conditionally), namely 125,000 rubles. Let's say he sells futures at 4,550 rubles. Over time, the securities actually fell to 4,050 rubles. and at the moment of their “release” the investor sells them. Then, his losses on the stock market will be (4.550 - 4.050) x 250,000 = -125,000 rubles. While the profit from closing a position on futures is the same 125,000 rubles. True, they will have to be reduced by the amount of the exchange fee and the broker’s commission. You can call it an insurance fee.
Uneven price declines in the physical and futures markets can result in losses for the hedger (if the price of a stock has fallen more than in the futures market), but in certain cases, hedging transactions in the futures market can completely exceed the losses and generate income. And a tool such as an option can help with this.
An option is a type of futures contract that gives the right to buy or sell an exchange asset at a fixed price on (or before) a specified date(s).
In exchange practice, two types of options are used: a buy option (call option), a sell option (put option). According to the first type of option, its buyer acquires the right, but not the obligation, to buy an exchange asset. Under the second type of option, the buyer has the right to sell this asset. The seller of the option is called the subscriber, and the buyer of the option is called the holder.
According to the expiration dates, the option can be of two types:
— American - the contract can be executed on any day before the expiration of the option;
— European - the contract can be executed only on the expiration date;
Option contracts, depending on the underlying asset, are divided into:
— commodity - the basis is any real product (precious or non-ferrous metals, oil, etc.);
- foreign exchange - based on changes in the rates of freely convertible currencies in relation to national currency;
- stock - the underlying asset is stocks, bonds, indices, interest rates;
- futures - are concluded on existing species futures contracts. They give the right to buy or sell the corresponding futures contract at the option exercise price, that is, the option is exchanged for a futures.
The history of the development of the Russian derivatives market is mainly associated with futures contracts. Our options market is very poorly developed. Meanwhile, the volume of global options trading today is almost equal to the volume of futures trading, although the exchange options market is not yet 30 years old.
In Russia, options trading is possible only in the FORST RTS system. This:
— option on futures on shares of RAO "UES of Russia";
— option on futures on shares of OAO Gazprom;
— option on futures on shares of OAO LUKOIL;
— option on futures on shares of OJSC Rostelecom;
— option on RTS Index futures;
— options on futures on the US dollar exchange rate.
Option price (premium) is the payment for the right to buy or sell the underlying asset.
The risk of the option buyer is limited to the premium he pays. If the price change is unfavorable for the option holder, he may not exercise the option contract and thereby lose the premium. The seller's risk is unlimited and his return is based on a premium. In other words, the seller of the option takes on the risk of the buyer and receives a premium for doing so, which is the price of the option.
In addition to the premium, the option has its own exercise price. The exercise price (strike price) is the price at which an option contract gives the right to buy or sell the underlying asset.
For example, by paying a premium of 10 rubles per share, the buyer of a call option gets the right to buy 100 shares of this type within 3 months at a price of 100 rubles per share (exercise price).
Option prices will depend on the price of the underlying asset in the physical market, the exercise price, the expiration date of the option, the volatility of the underlying asset and the risk-free investment rate.
Most general formula to calculate option prices is the Black-Scholes formula, which allows you to calculate the theoretical premium of a call option:
where C is the theoretical premium for the call option;
S - current price of the underlying asset;
t is the time remaining until the option is exercised, expressed as a fraction of a year (number of days until the exercise date/250 days);
K - option exercise price;
r - interest rate on risk-free assets;
N(x) - standard normal distribution with arguments.
where s is the annual standard deviation of the price of the underlying asset. Calculated by multiplying the standard deviation of the price over several days by the square root of 250.
Depending on the type of option, price, and expiration date, there are many option strategies. All option strategies can be divided into four main groups:
1. Simple strategies - opening one option position, i.e. buying or selling a call or put option;
2. Spread - simultaneous opening of two opposite positions for the same type of option with the same asset;
3. Combinatorial strategies - simultaneous opening of two identical positions for different types of options with the same asset (simultaneous purchase/sale of call and put options on the same asset);
4. Synthetic strategies:
— simultaneous opening of opposite positions for different types of options with the same asset;
— simultaneous opening of a position on the physical market of the asset itself and on the options market for this asset.
Each group of strategies has its own varieties.
The main advantages of options trading are as follows:
- high profitability of transactions - by paying a small premium for an option, in a favorable case, you can get a profit, which as a percentage of the premium is hundreds of percent;
— minimizing the risk for the buyer of the option by the amount of the premium with the possible receipt of theoretically unlimited profits.
The Russian derivatives market is one of the most promising segments today stock market. This is evidenced by the annual increase in market trade turnover and the emergence of ever new trading instruments. The most productive year in the history of the derivatives market was 2005.
In 2005, the total turnover of the Russian derivatives market exceeded 60.7 million contracts, or 907.3 billion rubles, which is 38.56 percent in contracts and 50.55 percent in monetary terms more than in 2004 ( table 7).
The leading roles in the derivatives market today are played by two stock giants - MICEX and RTS. The St. Petersburg exchanges, which previously occupied a significant market share, are far behind the leaders. At the end of the year, the total turnover on the St. Petersburg exchange, St. Petersburg Stock Exchange and St. Petersburg Stock Exchange amounted to less than 2 percent of the total trading volume of the Russian derivatives market.
In 2005, the range of derivative instruments in circulation was significantly expanded. The central event was the introduction into FORTS of futures and options on the RTS index, which is so far the only representative of the index derivatives segment on Russian market. March 5, 2005 1-month options on futures for shares of Gazprom, RAO UES of Russia, LUKOIL and Rostelecom were put into circulation. This made it possible to significantly expand the capabilities of market participants in terms of constructing option strategies. On October 10, futures circulation began for ordinary shares Sberbank, which allowed RTS to increase the number of futures contracts for individual shares to seven and almost completely cover the blue chip segment. In addition, already in 2006. new contracts on interest rates have appeared in FORTS - futures on baskets of 3- and 10-year Moscow bonds and on Russia-30 Eurobonds. On June 8, 2006, futures trading for Urals oil and gold began on the FORST market. The launch of futures for oil and petroleum products will allow participants oil market fix the purchase or sale price of oil in the future and thereby hedge against unfavorable price conditions.
During 2006 stock Exchange Russian Trading System Together with the Roshydromet Meteorological Agency, it plans to launch weather futures contracts on the FORTS derivatives market. In addition, the possibility of launching other instruments is being considered, including ruble/euro futures contracts, futures on the spread of Russian Eurobonds to US Treasuries, as well as on short-term ruble interest rate.
In 2006, the MICEX expects to launch an option on the US dollar exchange rate and introduce derivatives on interest rates, the underlying assets of which could be MosPime and MoslBOR, calculated by the National Monetary Association. Future plans include the launch of futures on the MICEX index, which will make it possible to compete with FORTS in the segment of index derivatives. Management's strategic plans include the development and implementation of derivative instruments for commodity assets - agricultural products, energy resources and other goods.
It may be noted that on domestic market derivatives, significant changes are taking place, transforming the previously narrow, specific segment of speculative trading into a full-fledged instrument of the Russian stock market. But, despite the dynamics of the changes taking place, the market volumes are extremely small. the main problem lies, first of all, in the absence legislative framework for the functioning of this market.
Today, there are no clear definitions of the rights and obligations of parties to transactions with derivative instruments, and there is no clarity on many issues of accounting and taxation of transactions. There is a need to adopt a special law “On derivative financial instruments”, which will give a general definition of derivative instruments and definitions of the main types of such instruments, establish the rights and obligations of the parties to transactions with them, and determine acceptable underlying assets. The law should establish requirements for participants in the derivatives market, including requirements for capitalization and other reliability factors for intermediaries and infrastructure institutions. Also, at the legislative level, it is necessary to regulate mechanisms for protecting the rights of derivatives market participants (different for different instruments), including requirements for the settlement system, measures to ensure obligations, features of the formation and use of guarantee funds, requirements for risk management of market participants.
Unfortunately, the fate of bills in the field forward trading leaves much to be desired. Almost 6 versions of the law were considered, but it all ended with the government, due to the continuous struggle around them, deciding to write negative conclusions to all versions of the law.
So, the main factor in the further successful development of the derivatives market in Russia is the creation of a strong legislative framework. Also to priority areas market activities should include the training of qualified specialists with knowledge of the derivatives market; improvement of exchange trading technology; increasing the reliability of the risk management system and guarantees of fulfillment of obligations.
Unlike a conventional forward agreement, deliverable futures are classified instruments that have their own specifications. In turn, a specification is an agreement that is drawn up on the exchange and approved by the relevant exchange authorities. It sets out the main terms and parameters of the contract.
The deliverable futures contract specifies the name of the contract, its symbol and type (in our case, deliverable), the volume of the contract (the amount of an asset per contract), the validity period, the minimum permissible change in the value of the asset, and the price of the minimum permissible step.
The subject of a futures transaction is a futures contract that stipulates the conditions mentioned above and specifies the procedure for transferring and receiving goods. A deliverable futures contract is not a security and cannot be canceled or liquidated. The only possibility to cancel the contract is to execute an opposite transaction with an equal volume of goods or delivery of the agreed asset within the period specified in the agreement.
Delivery of goods is allowed during certain periods (positions), which at each commodity exchange may vary. For example, if a futures contract was purchased on the New York Exchange for coffee, cocoa and sugar, then the delivery real asset possible only for a few months - in the third, fifth, seventh, ninth and twelfth. Delivery by the seller can be made on any day of these months. In this case, the result of a transaction with a deliverable futures contract is, as a rule, a real transfer of goods.
When registering a delivery futures contract, the parties agree on two main conditions – the expiration date and the price of the commodity. All other conditions are standard and subject to the rules of the exchange platform. All contracts are registered at the clearing house. From the moment the futures is registered, the parties to the transaction (buyer and seller) no longer enter into a relationship and work exclusively through the clearing house.
As already mentioned, each party can liquidate the deliverable futures contract by executing an offset agreement for the same volume of goods. If the contract has not been cancelled, the seller undertakes to provide the goods, and the buyer undertakes to accept them on the agreed terms.
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Rules for trading deliverable futures contracts:
1. The futures seller always focuses on lower prices. He receives income only if the value of the instrument increases.
2. The futures buyer focuses on increasing the price, because in this case he makes money on the price difference and receives income from the sale of the contract.
3. If one side of the transaction wins, the other always loses.
The procedure for concluding a transaction under a deliverable futures contract:
If more than 50 of your attempts have been successful, it makes sense to start futures contracts.
We briefly touched on this concept when we talked about. The time has come to discuss this issue more thoroughly.
Cramming the entire theory of investing in futures into a single post is simply unthinkable.
Therefore, we will move gradually and start with the basic categories. Naturally, it will not do without correct visual examples.
Concept of a futures contract
Terms " futures contract" And " futures"(from English) future, literally meaning “future”) are equivalent in use in business communication.
Both are a type of transaction, which is based on the client’s obsessive desire to predict in the foreseeable future (tied to a specific date) certain groups of goods or instruments.
In particular, commodity futures contracts are a form of consolidation to sell or purchase in one of the future periods (months, weeks) or before a specific date a predetermined quantity of goods at prices that are valid on the futures at the time of the transaction.
In addition to commodity futures, financial futures contracts are also widely used, operating not in relation to physical goods or services, but to financial ones (currencies, ).
Purpose of futures contracts
In fact, futures are a tough test of nerves and strength.
Before trading futures contracts stops causing headaches and begins to bring investors into the black, you will have to work hard and get into a lot of trouble...
Although the futures contract does not bode well for most investors, for professionals this financial instrument may be needed for smoothing accompanying other exchange transactions.
Let's remember: the main appeal for futures contracts is to pay off financial ones (we will analyze further what the risk reduction mechanism is at work here).
Investments in securities often involve the purchase of commodity or financial futures.
Many companies are forced to enter into futures contracts to hedge (insure) the risks of the fund.
To better understand how risk mechanisms are activated using futures contracts, let's look at a couple of examples.
Speculative example of a futures contract
Example 1. The conclusion of a futures contract in January 2015 for the purchase of a batch (4900 ounces) in September of the same year at a price of $6.91 per 1 ounce will require the futures contract to fulfill the terms of the transaction by September 30, 2015.
The seller of the futures contract, adhering to the same time frame, will be obliged to deliver the corresponding product to the market in the required volume.
In the 9 months that the futures agreement is in effect, anything can happen to silver prices. Both the seller and the buyer of a futures contract are at risk.
Make it clear who will be the losers and who will be the winners at the start futures deal impossible.
This is an example of purely speculative investment, which has nothing to do with other classic problems.
Hedging with a futures contract
Example 2. A private company wants to sell 14 tons of barley. In general, nothing prevents her from doing this at current exchange prices.
Meanwhile, under the terms of existing trade agreements with consumers of these products, the company must supply barley monthly in equal quantities of 3.5 tons.
In fact, our company will have to “split” the existing volumes of barley into 4 batches and supply them to consumers over the next 4 months.
In 4 months, barley prices can either rise or fall.
If, in the opinion of our company, the probability of a fall in barley prices is HIGHER (for example, due to a change in season or for other reasons), it is advisable for it to purchase a futures contract for the supply and sale of its products in the future at the price that is prevailing on the market today.
Thus, the company insures itself against the risk of lower barley prices.
This is a classic scheme for insuring (hedging) investment risks using futures contracts.
Advantages and disadvantages of futures
Undeniable advantage of futures contracts is their ability to REALLY reduce unwanted or relatively easily predictable risks.
At the same time, trading in futures contracts is always carried out briskly and hyperactively due to the special passion of some investors for speculation in the stock market...
To the number disadvantages of futures contracts I would include the following.
Firstly, this is the obvious difficulty of predicting events in the distinct stock and commodity markets.
The pursuit of extinguishing the risk of losing a commodity can easily result in the loss of funds spent on the purchase of a futures contract.
Secondly, trading futures contracts is not for the faint of heart and is not suitable for everyone you meet.
This will require special knowledge and long practice.
If you are not going to do this professionally, do not even try to waste your precious time on this type of investment.
Third, due to the fact that their clients are prepared to unreasonable limits, the risk of losing huge sums due to reckless transactions with futures contracts can reach the limit.
Today on the Econ Dude blog we will talk briefly about futures contracts (futures) and I will give an example of how they work on the stock exchange and when trading.
In fact, most people do not need to know this, since the topic is very specialized. Even economists often do not teach this as part of the general economic theory, because this applies to trading on the stock exchange and more to the West. But nevertheless, for everyone who is somehow connected with this trade, either professionally or simply interested, futures are a thing that sometimes occurs.
So, the word comes from the English futures contract, futures. And this word came from future - the future. A futures contract is an agreement between two parties to enter into a transaction with security at a pre-agreed price in future.
These contracts appeared in a rather interesting way and it was connected with. Since the production cycles of grain or cotton are quite long in terms of time, a guarantee of delivery was needed, and such contracts were such a guarantee.
Roughly speaking, the owner of the mill and bakery could agree with the farmer that he would buy grain in 6 months for $1, and the other party would deliver the goods at that moment. Such long-term contracts protected suppliers and sellers, allowing for more stable supply chains.
But then curious things happened: there was no longer a shortage of such suppliers and it was possible to buy almost any product at almost any time, the need for such contracts fell. But everyone liked the idea of executing a transaction after X amount of time because it gave more predictability and stability, and they picked up on this idea.
Such contracts can be called deferred; they are very close in meaning and mechanics to orders or forwards, but there are also slight differences. Futures in general are like one of the types of forwards, the difference is that futures are traded on an exchange, but forwards are darker, one-time and private transactions outside the exchange.
Index futures were traded by Nick Lisson () , and forwards are traded, for example, by importers, for example, by concluding these contracts to purchase currency in X days in order to protect themselves from the risk of quotes jumps.
At the same time, you cannot really speculate on forwards, since they are not on the exchange, but futures can be sold at any time.
Some people, I had an acquaintance, traded futures for a long time and did not even understand that they were trading them and what it was. Like a person buys and sells oil futures without even understanding that in fact such a future involves the delivery of crude oil to him, although in fact it has been under such contracts for a long time almost they don't deliver anything. Such instruments inflate markets, including the oil price market, introducing a wild speculative part into it, when real production, extraction and consumption cease to play any role in pricing, and everything stupidly depends on the behavior of investors, and not on fundamental factors.
An example of what a futures is (futures contract) you can give this one.
Consider a classic oil futures contract:
A friend of mine was selling this without even realizing that they could naturally bring him oil. I’m kidding, of course, because if you trade this through Russia, then most likely everything is done through an intermediary, and maybe many, but the essence of the futures is exactly this: by buying one such contract, for example for $68 now, you will receive 1 barrel of crude oil. The pendos will be brought by helicopter and poured into your window.
You can read how exactly the goods are delivered at the time the futures are executed if you know English, but personally this point has been interesting to me for a long time, and it was very difficult to find information on it, even in English.
And it shows that the trading volume on the market is 1.2 million contracts, not that much in fact, this is a day trade of 81 million dollars, although on some days it is twice as much. You see there in the picture CLM18 - this is the futures of 2018, that year CLM17 was traded and so on. It was a different paper and last year’s trading has already passed, and our futures closes in June 18th year.
Now the futures is trading at $68, and the real current price is slightly different, this is called spot price, but it is difficult to find as many popular sites do not even track it, and often do not mention that they show you the futures price, not the current one.
Here are all futures prices
Russian oil This is Urals, the difference in its price with others is not significant, but it is there. Russian oil is not of the highest quality, but not the worst either.
So, you can buy all these futures, through a broker and using, for example, MetaTrader you get access to all the instruments.
It is clear that real oil will not be delivered to you, but there is a redemption mechanism at the end of the contract, plus, many people play in the futures market very speculatively and buy/sell a million times a day.
Each futures contract has a specification. This is a document that contains the main terms of the contract:
- Name of the contract;
- Contract type (calculated or delivered);
- Price (size) contract - the amount of the underlying asset;
- Maturity period - the period during which the contract can be resold or bought back;
- Delivery or settlement date - the day on which the parties to the contract must fulfill their obligations;
- Minimum price change (step);
- Minimum step cost.
You can find all this, for example, on the website investing.com, it looks like this:
Below you see all the parameters of this contract
Now we are at the end of April 2018, the 26th. The contract will be executed in two months, but the price is constantly changing. At this second, enter into a contract, having purchased it, you have a fixed delivery at this price in 2 months. If something goes wrong, you can sell this futures at a different current price before June.
Futures are also used for the so-called (safety net), since they are executed at a fixed price in the future. In this way, you can be guaranteed to get one part of the equation stable, and the other to play more actively, but I will write more about this later in another article.
“Futures are very liquid, volatile and quite risky, so new investors and traders should not deal with them without proper preparation.” -
The same site reports that there are no real deliveries on futures, but in fact there are, it all depends on the type of futures.
If there is no supply, then the variation margin mechanics work.
When a futures contract is executed, if there is no delivery, the current price of the asset is compared to the futures purchase price and the exchange automatically calculates the difference, either paying you a premium or taking your money.
For example, if you buy a futures on an asset for $10 now, which expires in a year, and hold it for a year. Then, if the price has become, say, $15, then you will be charged $5, and if the price has dropped to $7, then they will charge you $3.
It is precisely because of such mechanics that exchanges require margin (Deposit margin - collateral) and a margin call may occur - automatic closing of positions. If you have no funds in your account, and your futures have fallen, while execution is still far away, then you have huge problems. You must have funds to cover potential losses at the time the futures close, this is a requirement of the exchange, and this is what led Singapore trader Nick Lisson to collapse. And that is why he constantly begged for money in London, precisely to cover this margin, and then forged documents (I'm talking about the movie "The Con Man" starring Ewan McGregor).
These are the pies. I hope the Econ Dude blog gave adequate examples and explained how futures work; you can find other articles about economics here.