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Markets
Chapter 2
Fundamentals of Futures and Options Markets, 8th Ed, Ch 2, Copyright John1C. Hull 2013
Futures Contracts
Available
Settled
daily
Futures
Price
Spot Price
Futures
Price
Spot Price
Time
(a)
Time
(b)
Margin
A
An
Trade
Settle
Daily
Price ($) Price ($) Gain ($)
Cumul.
Margin
Gain ($) Balance ($)
1,650.00
12,000
1,641.00
1,800
1,800
10,200
1,638.30
540
2,340
9,660
..
..
..
..
1,636.20
780
2,760
9,240
1,629.90
1,260
4,020
7,980
1,630.80
180
3,840
12,180
..
..
..
780
4,620
15,180
..
16
1,626.90
Margin
Call ($)
4,020
Bilateral clearing
Central clearing
Some Terminology
Open
Settlement
Volume
one day
Fundamentals of Futures and Options Markets, 8th Ed, Ch 2, Copyright John C.
14 Hull 2013
High
Low
Prior
settle
Last
trade
Change
Volume
Aug 2012
85.86
87.61
85.58
86.08
87.28
+1.20
223,698
Sept 2012
86.33
88.00
85.95
86.46
87.68
+1.22
87,931
Dec 2012
87.45
89.21
87.39
87.73
88.94
+1.21
31,701
Dec 2013
88.85
90.15
88.78
88.92
89.95
+1.03
11,128
Dec 2014
87.20
87.74
87.20
86.98
87.74
+0.76
2,388
Delivery
prices can be
Questions
When
Types of Orders
Limit
Stop-loss
Stop-limit
Market-if touched
Discretionary
Time of day
Open
Fill or kill
Regulation of Futures
Regulation
is designed to
protect the public interest
Regulators try to prevent
questionable trading practices
by either individuals on the floor
of the exchange or outside
groups
Forward Contracts
A forward contract is an OTC
agreement to buy or sell an asset at a
certain time in the future for a certain
price
There is no daily settlement (but
collateral may have to be posted). At
the end of the life of the contract one
party buys the asset for the agreed
price from the other party
Price of Underlying
at Maturity
Price of Underlying
at Maturity
Futures
Traded on an exchange
Not standardized
Standardized
Settled daily