future
Futures is an order contract, essentially a standardized contract, which stipulates a certain number of basic assets (such as commodities and financial instruments). ) will be bought or sold at a predetermined price at some time and place in the future. Futures contracts include detailed provisions on trading time, target, quantity and price.
For example, for soybeans, a farmer and a soybean paste manufacturer can sign a futures contract. According to the contract, one year later, the bean paste manufacturer will purchase 1 10,000 kg of soybeans at the price of 4 yuan per kg. This means that after one year, no matter whether the market price goes up or down, the transaction will be executed according to the contract.
Why do you want to sign a futures contract in advance? For bean paste producers, they may be worried about future soybean price fluctuations. By signing the contract in advance, they can lock in the future purchase price and avoid the risk of market fluctuation. For farmers, signing contracts in advance is also conducive to avoiding the risk of falling market prices and ensuring stable sales channels.
In fact, if the market price rises, soybean paste manufacturers will buy soybeans at the contract price, and farmers may feel losses because they can sell them at a higher price in the market. On the contrary, if the market price falls, farmers can still sell at the contract price in the futures contract, and the manufacturers of red bean paste may feel a loss because they may buy at a lower price in the market.
The characteristics of this futures contract enable both parties to avoid the risk of market fluctuation to a certain extent. It should be noted that the futures market is a zero-sum game, and the gains of one party come from the losses of the other. The flexibility of futures contracts can be achieved through some derivative contracts (such as options), but it will also increase the cost accordingly.
election
The right to choose, as its name implies, is a right. It is a financial instrument that allows the holder to buy (call option) or sell (put option) the underlying assets at an agreed price at a specific time in the future. In the option market, buyers and sellers agree on the right to buy and sell options through contracts.
Taking soybeans as an example, the bean paste manufacturers may be worried about the future price increase of soybeans, so they want to buy a right to lock the price, that is, to buy a call option. When the contract expires, if the market price is higher than the lock-in price, the manufacturer can exercise the right to buy soybeans at the contract price, and farmers must sell them to the manufacturer at this price. If the market price is lower than the lock-in price, the manufacturer can buy at a lower price in the market without exercising his rights.
This call option is good for manufacturers, but it is not free. When signing a contract, the manufacturer needs to pay the farmers the option fee, which is equivalent to the cost of purchasing future rights. By selling this option, farmers get an option fee and sell their future trading rights to manufacturers.
Corresponding to this is put option, farmers may be worried about the future decline in soybean prices, so they buy the right to lock the price. If the market price is lower than the lock-in price, farmers can exercise their rights and sell them to manufacturers at the contract price; If the market price is higher than the lock-in price, farmers can choose not to exercise their rights and sell them at a higher price in the market.
In the financial market, options are also basic assets such as stocks or indexes. Buyers (bulls) benefit from the increase in the price of the underlying assets, while sellers (bears) benefit from the decline in the price. The flexibility and diversity of options make it an important financial tool, and investors can flexibly manage and invest risks through options.
Option trading and futures trading are both different and related. Their connection is manifested in the following aspects:
1.*** Same characteristics: Option trading and futures trading are characterized by buying and selling forward standardized contracts. In these two kinds of transactions, market participants can enter into a contract and trade at a specific price at a specific time in the future.
2. Price relationship: The futures market price has an influence on the final price and premium of the option trading contract. Usually, the final price of option trading is based on the delivery price of similar commodities in futures contracts, and the difference between them is an important basis for determining the premium.
3. Basic relationship: Futures trading is the basis of option trading. Option trading generally includes the right to buy or sell a certain number of futures contracts. The development of futures market provides the basis for option trading, and mature futures market rules create conditions for the emergence and development of option trading.
4. Abundant tools: The emergence and development of options trading provide hedgers and speculators with more choices. Investors can deal with market risks through option trading, which expands and enriches the trading content of futures market.
5. Go long and short: Both futures trading and options trading can be long or short. In futures trading, traders do not necessarily make physical delivery. Similarly, in option trading, the buyer does not have to actually exercise the right, and the seller can also buy the same option before the option buyer exercises the right to relieve the responsibility.
6. Performance treatment: The subject matter of the option is the futures contract, so when the option is performed, the buyer and the seller will get the future positions accordingly, which is related to the trading in the futures market.
In short, options trading and futures trading complement each other, providing investors with more flexible tools and strategies, and making the whole derivatives market more diversified and rich.