- Change: The difference between the current trading session’s closing price and the previous trading session’s closing price. This is frequently expressed as a monetary value (the price) as well as a percentage value.
- 52-Week High/Low: The contract’s highest and lowest prices in the last 52 weeks.
- Each futures contract has a unique name/code that describes what it is and when it will expire. Because there are several contracts traded throughout the year, all of which are set to expire, this is the case.
What method do you use to read futures markets?
A futures market is an auction market where people purchase and sell commodity and futures contracts for delivery at a later date. Futures are exchange-traded derivatives contracts that guarantee the delivery of a commodity or security in the future at a certain price.
What are the current currency futures prices?
An FX futures product’s pricing is determined by the spot rate of the currency pair and a short-term interest differential. The pricing formula is identical to that used in the OTC market for FX futures.
How do futures contracts get their quotes?
- The price of a futures contract is referred to as a basis quotation when it is compared to the price of the underlying asset.
- The price of the contract minus the spot price of the underlying asset is the foundation of most futures contracts.
- The basis for commodity futures is the spot price of the commodity minus the futures price.
- The reverse is due to the fact that commodity futures are typically more expensive than spot prices, owing to the commodities’ high holding costs.
- Distinct markets will exhibit different patterns in terms of the link between spot and futures prices, even when dividend payments are taken into account.
What are the implications of futures prices?
Most people who follow the financial markets are aware that events in Asia and Europe can have an impact on the US market. How many times have you awoken to CNBC or Bloomberg reporting that European markets are down 2%, that futures are pointing to a weaker open, and that markets are trading below fair value? What happens on the other side of the world can influence markets in a global economy. This could be one of the reasons why the S&P 500, Dow 30, and NASDAQ 100 indexes open with a gap up or down.
The indices are a real-time (live) depiction of the equities that make up the portfolio. Only during the NYSE trading hours (09:3016:00 ET) do the indexes indicate the current value of the index. This means that the indexes trade for 61/2 hours of the day, or 27% of the time, during a 24-hour day. That means that 73 percent of the time, the markets in the United States do not reflect what is going on in the rest of the world. Because our stocks have been traded on exchanges throughout the world and have been pushed up or down during international markets, this time gap is what causes our markets in the United States to gap up or gap down at the open. Until the markets open in New York, the US indices “don’t see” that movement. It is necessary to have an indicator that monitors the marketplace 24 hours a day. The futures markets come into play here.
Index futures are a derivative of the indexes themselves. Futures are contracts that look into the future to “lock in” a price or predict where something will be in the future; hence the term. We can observe index futures to obtain a sense of market direction because index futures (S&P 500, Dow 30, NASDAQ 100, Russell 2000) trade practically 24 hours a day. Futures prices will fluctuate depending on which part of the world is open at the time, so the 24-hour market must be separated into time segments to determine which time zone and geographic location is having the most impact on the market at any given moment.
What method do you use to interpret futures symbols?
Futures tickers are slightly different from stock tickers. Each futures market has its own ticker symbol, which is followed by the contract month and year symbols. Crude oil futures, for example, carry the ticker symbol CL. CLZ7 is the full ticker sign for December 2017 Crude Oil Futures. The ticker symbol for gold is (GC), and the whole ticker symbol for June 2017 gold is GCM7.
The “CL” stands for the underlying futures contract in the case of oil. The letter “Z” denotes a December delivery month. (F=January, G=February, H=March, I=April, K=May, M=June, N=July, Q=August, U=September, V=October, X=November, Z=December) The number “7” represents the year – 2017.
For futures ticker symbols, this is the conventional formula. Some quote services may vary slightly, so double-check with your source, who will give you a list of ticker symbols for all futures markets.
Are futures a reliable predictor?
Index futures prices are frequently a good predictor of opening market direction, but the signal is only valid for a short time. The opening bell on Wall Street is notoriously turbulent, accounting for a disproportionate chunk of total trading volume. The market impact can overpower whatever price movement the index futures imply if an institutional investor weighs in with a large buy or sell program in numerous equities. Of course, institutional traders keep an eye on futures prices, but the larger the orders they have to fill, the less crucial the direction signal from index futures becomes.
What is the best way to trade FX futures?
Currency futures are futures that are exchanged on an exchange. Traders often have accounts with brokers who place orders to purchase and sell currency futures contracts on multiple markets. In order to place a trade in currency futures, a margin account is typically used; otherwise, a large sum of money would be necessary. Traders use a margin account to borrow money from their broker in order to place trades, which is normally a multiple of the account’s actual cash value.
How do you protect yourself against currency futures?
Forex risk is a danger that any individual or business that deals with foreign currency is exposed to. Whether you’re an exporter, importer, ECB borrower, FCNR borrower, or a worldwide tourist, currencies have a significant impact on your finances. Payables in foreign currency are owed to an importer or a foreign borrower. As a result, they’ll be looking to keep the INR high so that they may collect more dollars for the same amount of rupees when their foreign currency obligation is due. Importers and foreign currency borrowers will need to protect their businesses from the rupee’s depreciation.
The exporter, on the other hand, has foreign currency receivables that will be paid at a later period. The exporter must ensure that the rupee remains weak, as this will result in his receiving more INR for each dollar received. The exporter will be glad if the rupee weakens, but he will need to protect himself if the currency strengthens. The USD-INR pair can be used by both importers and exporters to achieve the same result. Futures or options can be used to hedge the risk, and we’ll look at how each of these strategies can be used. While the USD-INR pair is presented as an example because of its liquidity and popularity, the same rationale may be applied to receivables in the Pound, Euro, and Yen.
Let’s look at an illustration to assist us comprehend this. Assume Raghav Exports Ltd. has a $50,000/- export inward remittance that is due on September 30th. While Raghav is aware of the dollar amount he will receive on September 30th, he is unsure of how much INR that will translate into, as it will be determined by the USD-INR exchange rate on that date. The current exchange rate is Rs.64 to $1. On September 30th, this will translate into a rupee inflow of INR 32 lakhs. Raghav has obligations on October 10th and is satisfied with the exchange rate of 64/$ on settlement day.
Raghav Exports, on the other hand, has been warned by their banker that the INR may actually appreciate to 62/$ by September 30th as a result of large FDI inflow into India. In rupee terms, this means Raghav exports will only receive Rs.31 lakhs. Raghav Exports is concerned that this will result in a shortfall in meeting their October 10th outflow pledge. As a result, the corporation must manage its inbound dollar risk. How would Raghav Exports be able to accomplish this?
Simply put, Raghav Exports can mitigate this risk by selling 50 lots of the USD-INR pair at Rs.64 per lot (each lot is worth $1000). This will provide them with complete protection. This is how it is going to function. Assume that the INR has appreciated to 62/$ on the 30th of September, the inbound date. On September 30th, Raghav Exports will receive a transfer of $50,000/-, which will be translated to Rs.31 lakhs. Raghav, on the other hand, has sold 50 units of USD-INR futures for Rs.64 each. Raghav exporters will gain a Rs.1 lakh profit on the position now that the price has dropped to 62. As a result, the total receivable is now Rs.32 lakh (Rs.31 lakh from conversion and Rs.1 lakh from the short USD-INR futures). Raghav Exports has effectively hedged its conversion price at Rs.64/$.
What happens if the INR depreciates to Rs.68, on the other hand? Raghav Exports would have made a profit in normal circumstances, but due to the hedging, it will be locked in at Rs.64/$. This will result in a Rs.4 notional loss, but the goal is to protect your downside risk rather than to profit. There are two ways to get around this. The USD-INR pair can be held with a stringent stop loss, or hedging can be done with put options rather than futures, limiting the maximum risk to the amount of the option premium.
In this case, the situation will be the polar opposite of the exporter’s. A dollar will be due at a later date to an importer or a foreign currency borrower. As a result, they must guarantee that the INR does not decline too much, as this will necessitate the use of more rupees to obtain the same amount of dollars. By purchasing USD-INR futures, the importer or foreign currency borrower might reduce their risk. When the rupee falls in value, the dollar rises in value, increasing the value of USD-INR futures. Any dollar loss he incurs as a result of the weaker INR will be offset by long USD-INR futures. Hedging can also be done using options in the event of an importer or foreign currency borrower by purchasing a call option on the USD-INR pair.
Currency derivatives (futures and options) are also a useful way to hedge future dollar risk. While the OTC forward market continues to dominate, currency derivatives are quickly becoming the preferred method of managing currency risk.
How can you recall the month codes for futures?
A futures contract’s full ticker symbol will include a two-character code for the commodity, a single letter for the delivery month, and a two-digit number for the year. Identifying the Month of Delivery
Is futures trading permissible or prohibited?
To begin with, it is a well-established Shariah concept that a sale or purchase cannot be delayed. As a result, in Shariah, all Forward and Futures transactions are invalid.