2.1 Trading futures contracts
The two largest exchanges in USA:CBOT、 、 CME How a future contract comes into existence: an example of corn contract traded Closing out positions: entering into the opposite type of trade from the original one.
Mechanics of futures markets
2008.2.25

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Main Contents
2.1 Trading futures contracts 2.2 Specification of the futures contracts 2.3 Convergence of futures price to spot price 2.4 Operation of margins 2.5 Newspaper quotes 2.6 keynes and Hicks

2.9 Regulation
CFTC Treasury Department NFA
FRB
SEC

2.9 Regulation
1
Corner the market
2
The traders on the floor of the exchange

2.3 Convergence of futures price to spot price
Relationship between futures price and spot price
Future price Above spot price
Future price Below spot price
Trading Irregularities


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Operation of margins

2.5 Newspaper quotes
Settlement price
Lifetime highs and lows
price
Newspaper quotes

Patterns of futures prices
Open interest And volume of trading

2.8 Types of traders
Limit order Stop order
Market order
orders
Time-of-day order
Stop-limit order
Market –if-touch order Discretionary order

2.2 Specification of the futures contracts
The exchange must specify the exact nature of the agreement between the two parties in some detail. The Asset: It is very important that the exchange stipulate the grades of the commodity that are acceptable. An example. The financial assets in futures contracts are generally well defined and unambiguous. An example. The Contract Size: specify the amount of the asset that has to be delivered under one contract. It is depended on the likely user. Delivery Arrangements: the exchange must specify the delivery place. Delivery Months: For many contracts ,the delivery month is the whole month.

2.4 Operation of margins
Maintenance margin Marking to market Gross basis Net basis Day trade Spread trade
Further details
The clearinghouse and clearing margins

2.7 Delivery
Cash settlement: Some financial futures ,such as those on stock indices ,are settled in cash because it is inconvenient or impossible to deliver the underlying asset.

Main Contents
2.7 Delivery 2.8 Types of traders 2.9 Regulation 2.10 Accounting and tax 2.11 Forward contracts vs futures contracts 2.12 Summary

2.6 keynes and Hicks
Conclusion: If hedgers tend to hold short positions and speculators tend to hold long positions, the future price of an asset will be below its expected future spot price.

2.8 Types of traders
1
Commission brokers
Following the instructions of their clients and charge a commission for doing so
2
Locals
Trading on their own account
2.2 Specification of the futures contracts
Price Quotes: convenient and easy to understand. Daily Price Movement Limits: limit down& limit up. limit move. The purpose is to prevent large price movement from occurring because of speculative excesses. Position Limits: the maximum number of contracts that a speculator may hold. The purpose is to prevent speculator from exercising undue influence on the market.