Examples of futures trading:
Suppose Xiaoming is the operator of a flour processing factory. Xiao Ming predicts that the price of flour may rise in the next three months. In order to lock in the current price, Xiao Ming decided to conduct futures trading.
1. Select the basic asset: Xiaoming chooses flour as the basic asset.
2. Choose a contract: Xiao Ming chooses a flour futures contract that expires in three months.
3. Place an order: Xiaoming trades with the futures exchange and places an order to buy a flour futures contract. Each contract represents a certain amount of flour, such as 1000 tons.
4. Deposit payment: As the buyer, Xiao Ming needs to pay a certain percentage of deposit, usually part of the contract amount. Assuming that the deposit ratio is 10% and the contract amount is 100000 yuan, Xiao Ming needs to pay100000 yuan as the deposit.
5. Holding a contract: Xiaoming holds a flour futures contract and can buy flour at the agreed price on the expiration date of the contract.
6. Settlement: If the price of flour rises on the expiration date of the contract, Xiao Mingcan chooses to execute the contract and buy flour at the agreed price and make a profit. If the price of flour falls, Xiao Mingcan chooses not to carry out the contract to avoid losses.
Examples of options trading:
Suppose Xiaohong is a stock investor. Xiaohong holds shares in a company, but she is worried that the share price may fall in the future. In order to protect his investment, Xiaohong decided to trade options.
1. Select the base asset: Xiaohong selects the company stock as the base asset.
2. Choose a contract: Xiaohong chooses a purchase option contract that expires in three months.
3. Place an order: Xiaohong places an order to purchase an option contract through the options exchange. Each contract represents a certain number of shares, such as 100 shares.
4. Payment of option fee: Xiaohong, as the buyer, needs to pay the option fee, that is, the cost of purchasing the option contract. Suppose the option fee is 1 USD/share, Xiaohong buys the option contract 100 shares, and Xiaohong needs to pay 100 yuan as the option fee.
5. Holding contract: Xiaohong holds an option contract and can buy shares at the agreed price on the expiration date of the contract.
6. Settlement: If the stock price falls on the expiration date of the contract, Xiaohong can choose not to exercise the right and only lose the option fee. If the stock price rises, Xiaohong can choose to exercise the contract to buy shares at the agreed price to protect Xiaohong's investment.