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Introduction to the Futures Market

Introduction to the Futures Market. Ag. Econ. 160 Dr. James Cothern. The Marketing Manager and Risk Management. Why Study The Futures Market?. Futures Market a Laboratory Which Reacts to All Economic Phenomena Prices Respond to Many Differing Events, Futures Markets React Instantly

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Introduction to the Futures Market

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  1. Introduction to the Futures Market Ag. Econ. 160 Dr. James Cothern

  2. The Marketing Manager and Risk Management Introduction to the Futures Market

  3. Why Study The Futures Market? • Futures Market a Laboratory Which Reacts to All Economic Phenomena • Prices Respond to Many Differing Events, Futures Markets React Instantly • Pricing Products and Locking in Costs For Profit are The Most Important Job in Marketing, Futures Offers Alternatives Available No Where Else • Incorporates All You Have Learned in Economics Introduction to the Futures Market

  4. Evolution of the Futures Market “Futures Market Today is an international phenomena..Financial futures domminate…Why? Introduction to the Futures Market

  5. The Role of the Exchange Today Introduction to the Futures Market

  6. Futures vs. a Forward Contract Introduction to the Futures Market

  7. Market Participants Introduction to the Futures Market

  8. The Role of Hedgers and Speculators Introduction to the Futures Market

  9. Participants Use Margin in Trading Introduction to the Futures Market

  10. Characteristics of a Futures Contract Introduction to the Futures Market

  11. Contract Specifics: Commodities Introduction to the Futures Market

  12. Contract Specifics: Commodities (Cont.) Introduction to the Futures Market

  13. Commodity Characteristics: WSJ Introduction to the Futures Market

  14. Daily Pricing Activity With “Quotes” • Transactions or Trades Continue Throughout the Day • Trades can vary through a great range of prices depending on how much volatility is in the market • Exchanges Use a Series of Summary Terms to Explain this daily activity Introduction to the Futures Market

  15. Futures Quotes: Terms Used in Trading Introduction to the Futures Market

  16. Reading a Quote:Understanding“Settle” and “Change” Introduction to the Futures Market

  17. Understanding Cotton Quotes Introduction to the Futures Market

  18. Understanding Corn and Soybean Quotes Introduction to the Futures Market

  19. Understanding Live Cattle Quotes Introduction to the Futures Market

  20. Types of Orders Traders Use in Trading Introduction to the Futures Market

  21. Order Placement Introduction to the Futures Market

  22. Order Placement: The Game Introduction to the Futures Market

  23. Order Types Introduction to the Futures Market

  24. Duration of Orders Introduction to the Futures Market

  25. A Speculative Trade: Beth Bigbucks and Dennis Deepocket Introduction to the Futures Market

  26. Trade Example: Beth’s Profits Introduction to the Futures Market

  27. Trade Example: Dennis’ Loss Introduction to the Futures Market

  28. Why Do Cash and Futures Prices Differ? Introduction to the Futures Market

  29. Convergence of Cash and Futures Prices Introduction to the Futures Market

  30. Convergence: Futures Above Cash Introduction to the Futures Market

  31. Convergence: Cash Above Futures Introduction to the Futures Market

  32. Basic Hedge: Cash Market Falls Introduction to the Futures Market

  33. Basic Hedge: Cash Market Rises Perfect Hedge: Affected by Zero Basis Introduction to the Futures Market

  34. Hedge Example: Cotton Zero Basis A “Perfect” Hedge Because Cash and Futures Were Exactly Equal at Time of Contract Termination…Good for Exemplary Circumstances But Unlikely Introduction to the Futures Market

  35. Hedge Example: Cotton “Off” Basis Introduction to the Futures Market

  36. Hedge Example: Cotton “On” Basis Introduction to the Futures Market

  37. Incentives to Make or Take Delivery Introduction to the Futures Market

  38. “Long” Hedge:Price Rises, Zero Basis Introduction to the Futures Market

  39. “Long” Hedge: Price Falls, Zero Basis Introduction to the Futures Market

  40. Risk Management Program Mandatory Today • The Futures Market Today • Diverse and Complex • Financial futures dominate • Trading in Eurodollars: Interest rate risk • Major Companies Hedge Many Types of Risk • Airlines: What Might They Wish to Hedge? How? • Construction and developers: What and How? • Lenders: What and How? • What has happened recently with interest rates? Introduction to the Futures Market

  41. Futures Market Glossary Introduction to the Futures Market

  42. Summary Introduction to the Futures Market

  43. Summary (Continued) Introduction to the Futures Market

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