Becoming Familiar With the Futures Market

1. Becoming Familiar With the Futures Market Define the ___________ market and its functions and understand the functions of the futures exchange Define a futures _____________ and understand its ________________ terms Describe the different futures market participants Understand the ____________ house and margins Describe the difference between ________ and ___________ contracts Describe carrying charges

2. Objective 1: Defining the Futures Market

3. Objective 1:Defining the Futures Market • The Futures Market is defined as: The __________ of trading futures contracts and __________ the facilitates that market many _______ products

4. Objective 1: The Functions of the Futures Market • Provide an ________ and _________ mechanism for the management of price risk • Provide an efficient mechanism for price _________ • Provide a source of ___________ for decision making • Provide a means for _______ to secure additional __________ capital

5. Objective 1: The Functions of the Futures Exchange • To bring together in a ________ place a large number of ______ and ________ • To ________ and _________ trading rules and _____________ • To settle disputes • To collect and __________ marketing information to the public

6. Objective 1: • Define the futures market • Functions of the futures market • Functions of the futures exchange

7. Objective 2 Define a futures ________ and understand its ___________terms

8. Define a futures contract • A _______ binding commitment to make or take __________ of a ____________ quantity and quality of a commodity at a predetermined ______ and time in the future, for a price determined by auction in the trading _____ of an exchange • Price is determined by open __________. • Open outcry is when _______ are __________ in a pit • The __________ of open outcry is that it is ______________ price _______________

9. Define A Futures Contract Cont. There are ______ ways that a futures __________ can be settled. • Delivery • Less the ______ of all contracts traded is ___________ on. • Offsetting. • Means to do the ____________ of what you had previously done. • Example: if you had previously bought a contract, you _____ it back. If you had sold one, then you _______ it back.

10. Standardized Terms • All terms for a futures contract are standardized, _____________ the price. • The price again is found by open outcry in the trading pit. • The __________________ terms include the following • ______________ month – • month of contracts. • For example: March, May, July, September, December • _______________ Size – • Unit size of the contracts. • For Example: Grains are _________bu; Feeder cattle are 50000lbs and live cattle (fat Cattle) are ____________lbs

11. Standardized Terms Cont. 3. Place of ___________ – • if delivered on, the delivery _________ 4. Minimum Price ________________ – • minimum ______________ in the price • for example: ____ _________ in grains 5. ___________ daily price move – • Maximum it can ______ in _____ day • for example 30 cents in wheat

12. Objective 2 • Define a Futures contract • Standardized Terms

13. Objective #3 Describe the different futures market _______________

14. Objective 3: Describe the different futures market participants • There is a difference between ________ and ____________ • __________ • ________ and ________ contracts for him or her self – does not take customer orders • ___________ • take _____________ orders; may trade for him or her self, but _________ responsibility is his customer

15. Objective 3: Describe the different futures market participants • We can __________ the people who are the futures market participants into several different categories. The general ____________ that trades would be in the last two categories: either public _______________ or ___________ • __________ ____________: fill orders for outside speculators and hedgers • ______________ Speculators: trade for own accounts • ____________ – buys and sells minute by minute • ______ _____________ – take larger positions and hold for longer, but usually not overnight

16. Objective 3: Describe the different futures market participants 5. ________ __________ – take large positions and hold for several days 6. __________: producers or users of commodities who seek protection against adverse price changes by taking a futures position opposite to cash position 7. __________ ______________: Place orders with brokers to profit from anticipated price changes. Not necessarily interested in owning the commodity, but only in profiting off movements in the price

17. Objective 4 Understand the ______________ and margins

18. Objective 4: Understand the clearinghouse and margins • Clearing House • Assumes the _________ side of every trade so that all ________ between buyers and sellers are severed • Because the number of buys _____ number of sells, the clearing house has no net position

19. Objective 4: Margins • To trade you must have an _____________ • With every new trade, traders must ________ money called _________ • Margins serves as a deposit • Initial margin: __________ deposit paid • ________________ Margin: _____________ amount of money that must be _______ in accounts • Margins are _________ a __________ for trading futures. Your margin money is a deposit in your account and if your trade is not a __________ trade, you will still have your margin money • The clearing house “_______-____-___________” all open positions at the end of a day to adjust all accounts

20. Objective 4: Margins Cont. 8. __________ _______ – when the equity in the traders account falls below the maintenance margin level 1. Must then deposit enough _______ to bring the __________ in the account back to the ____________ margin level

21. Objective 5: Describe the difference between ________ and ________ positions

22. Objective 5: Short Position The term to ______ is also known as a _______ position. To be short means that you are trying to ___________ the commodity in your possession from ___________ prices. ____________ are generally sellers of _______ position holders Short = _________ = Protect from falling prices = ________________

23. Objective 5: Long Position • The term to _______ is also known as a _________ position. To be long means that you are trying to protect the _____________ price of a commodity that you plan on obtaining from ___________ prices. Mills, _____________, and packers would be __________ position holders • Long = _______ = protect from _____________ prices = Mills, factories, packers

24. Simple Rule: • Buy _____ and _____ High in either order

25. Objective 6: Describe ____________ charges

26. Describe carrying charges • __________ _________= the _______________ in the prices from one futures ____________ to another

27. Normal Market • ____________ ____________ = is ____________ price is lower than the ____________ contract price – so prices increase into the future. It reflects the cost of storage. • For example, if the nearby month is Dec and the Dec price is 2.32 and the March price ________ and the May price is 2.44 and the July Price is _________ and the Sept price is 2.57 then the market is ______________ • Is _____________ when supplies are ___________ • Tells the trader what the __________ will pay for ___________ • Futures price spreads ____________ reflect full _____________ charge

28. Inverted Market • Inverted Market = • nearby __________ are ___________ than distant contract prices – So prices _________ into the future. • It reflects a __________ price of storage. In other words, we are in _________ demand of the product so the market price is telling you that they will pay ________________ if the product is delivered now – do not store the product until later. • For example, if Dec is the nearby month again, but this time the Dec price is 2.32, the March price is 2.28, the May price is ________, the July price is 2.16, and the Sept price is _________, now the market is _____________

29. Inverted Market Cont. 4. Usually prevails when supplies are ________ 5. Market says they will pay a __________ if you deliver now 6. Reflects ______________ price of storage

30. Review and Summary

31. Now You Should Be Able To: • Define the futures ___________and its _____________ and understand the functions of the ___________ exchange • Define a futures contract and understand its _____________ terms • Describe the different futures market _________________ • Understand the _______________________ and ________________ • Describe the difference between ___________ and ______________ contracts • Describe _______________ charges

32. ANY QUESTIONS