Since 1970s, frequent and large fluctuations in exchange rate and interest rate have aggravated the inherent risks of financial commodities. Facing the increasingly extensive wave of financial liberalization, investors objectively demand to avoid interest rate risk, exchange rate risk and risk.
A series of financial risks such as stock price fluctuation risk. The establishment and development of financial futures market is to meet this demand. Therefore, avoiding risks is the primary function of the financial futures market.
By purchasing relevant financial futures contracts, investors set up positions in the financial futures market that are opposite to those in the spot market, and according to different market conditions, hedge their positions or execute delivery before the futures contracts expire to avoid risks.
From the perspective of the whole financial futures market, there are three main reasons why its hedging function can be realized: First, many physical financial commodity holders face different risks, and the overall risk of the market can be controlled by reaching favorable transactions. For example, importers are worried about the rise of foreign exchange rate, while exporters are worried about the fall of foreign exchange rate, so they can hedge their risks by making a reverse forex futures trading. Secondly, the futures price and spot price of financial commodities generally change in the same direction. After an investor establishes a position in the financial futures market that is opposite to the financial spot market, when the price of financial commodities changes, it is bound to gain in one market and lose in the other, and its profit and loss can be offset in whole or in part, thus achieving the purpose of avoiding risks. Thirdly, the financial futures market has concentrated many speculators who are willing to take risks and make profits through standardized floor trading. Through frequent and rapid trading hedging, they transferred the price risk of physical financial commodity holders, thus realizing the hedging function of financial futures market.
(2) Find the price
The discovery price function of financial futures market means that financial futures market can provide effective price information of various financial commodities.
In the financial futures market, there are many buyers and sellers of various financial futures contracts. They set the transaction price in a way similar to auction. This situation is close to a perfectly competitive market, which can reflect investors' expectations of financial commodity price trends and financial commodity supply and demand to a certain extent. Therefore, the transaction price of financial futures contracts can comprehensively reflect the influence of various factors in the financial market on the underlying commodities, which is characterized by openness and transparency.
Due to the development of modern electronic communication technology, the prices of major financial futures can generally be broadcast to all parts of the world in real time. Therefore, the price formed in the financial futures market not only plays a direct guiding role for all kinds of investors in the market, but also provides useful reference information for other related markets besides the financial futures market. Professional investors and physical financial commodity holders in relevant markets can form reasonable expectations of financial commodity prices by referring to the transaction prices in the financial futures market, and then arrange investment decisions and production and operation decisions in a planned way, which is helpful to reduce information search costs, improve transaction efficiency and realize fair and reasonable competition with equal opportunities.
The main factors affecting financial futures are: national economic growth, money supply, inflation rate, balance of payments, national monetary, fiscal and foreign exchange policies, international reserves, psychological factors and so on. When we analyze the development trend of a particular kind of financial futures, we should make flexible judgments based on the above situation.