Section 1 Types and Identification of Futures Market Risks

I. Types of futures market risks

The risks in the futures market are diverse and complex, and risks can be divided and classified from different angles. To sum up, there are several ways to divide futures market risks:

(1) From the perspective of whether the risk is controllable.

Futures market risks can be divided into uncontrollable risks and controllable risks.

1, uncontrollable risk

Uncontrollable risk refers to the risk that the risk taker can't control its generation and formation. This kind of risk comes from outside the futures market, which may have an impact on the relevant subjects of the futures market, mainly including macro-environmental change risk and policy risk.

2. Controllable risk

Controllable risk refers to the risk that relevant subjects can control or manage in the futures market. Such as the management risk and technical risk of the exchange.

(B) Risk division from the main body

1. Investors: speculators and hedgers.

2. Futures companies

3. Foreign exchange futures

4. Governments and regulatory agencies

(C) from the source of risk division

Risk sources can be divided into market risk, credit risk, liquidity risk, operational risk and legal risk.

1. Market risk: it is the risk that the value of futures contracts held will change due to price changes, and it is the most common and important risk in futures trading.

2. Credit risk: refers to the risk caused by the counterparty's failure to perform its obligations.

3. Liquidity risk: Liquidity risk and capital risk.

4. Operational risk: refers to the possibility of unexpected losses caused by defects in the information system or internal control.

5. Legal risk: refers to the risk arising from the conflict between related behaviors (such as signed contracts, trading partners, tax treatment, etc.) in futures trading. ) and the corresponding laws and regulations, can not achieve the expected economic results or even suffer losses.

Second, the causes of futures market risks

fluctuations in prices

(B) the leverage effect

(c) Centralized transactions make risks extensible

(D) The persistence of risks caused by antagonistic transactions.

Three. Principles of risk management in futures market

(A) the meaning of risk management

Risk management refers to the management process of minimizing risks in a risky environment.

The basic process of risk management can be summarized as: risk identification, risk prediction and measurement, and selecting effective means to deal with or control risks.

1. Risk identification: the first step of risk management, which helps to identify risks through risk listing and flow chart analysis.

Risk enumeration means that the risk management department lists the risks existing in each business link according to the business process. Flowchart method means that the risk management department comprehensively analyzes the whole business process, analyzes the possible risks in each link item by item, and finds out various potential risk factors.

2. Risk prediction and measurement: it is to estimate and measure risks, including predicting the probability and intensity of risks.

(1)VAR(Value at Risk) method has become the mainstream method to measure market risk in financial circles.

(2) 2) The meaning of VAR is value at risk, which refers to the possible losses of a financial asset or portfolio under normal market fluctuations. More precisely, it refers to the possible loss of a financial asset or portfolio in a certain period of time in the future under a certain level of confidence. The mathematical formula can be expressed as:

prob(△P & gt； VaR)= 1-c

Among them, △P is the loss of the securities portfolio during the holding period; VaR is the risk value at confidence level c, where both VaR and loss are positive numbers.

3. Risk control: the realm of risk control is to eliminate risks or avoid risks.

Risk control includes two aspects: first, the choice of risk control measures, which is the result of cost-benefit balance; The second is to make a feasible emergency plan, make full preparations for the risks to the maximum extent, and when the risks occur, implement them according to the preset plan to control the losses to a minimum.

(B) the characteristics of risk management in the futures market

In the futures market, the content, emphasis and measures of risk management are different for all stakeholders.

1. Futures traders: Faced with controllable risks and uncontrollable risks.

2. Futures companies and futures exchanges: What they face is mainly management risk.