A bull refers to a bull, which can also be called a bull, buying a certain currency and being bullish;
Doing more means avoiding or hedging the risk of expanding production costs caused by future price increases, and locking in costs in advance.
Futures, whose English name is futures, is completely different from spot. Spot is actually a tradable commodity. Futures are mainly not commodities, but standardized tradable contracts based on some popular products such as cotton, soybeans and oil and financial assets such as stocks and bonds.
The function of futures:
1 Discovery price
Because futures trading is an open contract transaction of forward delivery goods, a lot of market supply and demand information is concentrated in this market, and different people come from different places and have different understandings of all kinds of information, which leads to different views on forward prices through open bidding.
In fact, the process of futures trading is a comprehensive reflection of the change of supply and demand relationship and the expectation of price trend in a certain period of time in the future. This kind of price information has the characteristics of continuity, openness and anticipation, which is conducive to increasing market transparency and improving resource allocation efficiency.
2 Avoid risks
The emergence of futures trading provides a place and means for the spot market to avoid price risks. Its main principle is to use futures and spot markets for hedging transactions.
In the actual production and operation process, in order to avoid rising costs or falling profits caused by changing commodity prices, futures trading can be used for hedging, that is, buying or selling futures contracts with the same quantity but opposite trading directions in the futures market, so that the gains and losses of futures and spot market transactions can offset each other.
Lock in the production cost or commodity sales price of the enterprise, maintain the established profit and avoid the price risk.
3 Hedging
When buying or selling a certain number of spot commodities in the spot market, selling or buying futures commodities (futures contracts) of the same variety and quantity in the opposite direction in the futures market will make up for the losses in another market with the profits in one market to avoid price risks.
Futures trading can preserve the value because the spot price of a specific commodity is influenced and restricted by the same economic factors, and the price changes of the two are generally in the same direction. Due to the existence of the delivery mechanism, the spot price of futures contracts converges near the delivery period.
4 delivery: there are generally two ways to close futures trading positions (namely, closing positions). One is hedging liquidation; The second is physical delivery. Physical delivery is to fulfill the responsibility of futures trading through physical delivery. Therefore, futures delivery refers to the behavior of buyers and sellers of futures trading to make physical delivery when their open contracts expire according to the regulations of the exchange, and end their futures trading.
Physical delivery accounts for a small proportion of the total futures contracts. However, it is the existence of the physical delivery mechanism that makes the futures price change synchronous with the related spot price change, and gradually approaches with the approaching of the contract expiration date.
As far as its nature is concerned, physical delivery is a kind of spot trading behavior, but physical delivery in futures trading is the continuation of futures trading, which is at the junction of futures market and spot market and is the bridge and link between futures market and spot market. Therefore, the physical delivery in futures trading is the basis of the existence of the futures market and the fundamental premise for the two major economic functions of the futures market to play.
The two functions of futures trading provide a stage and foundation for the application of the two trading modes in the futures market. The function of price discovery requires the participation of many speculators, which concentrates a lot of market information and abundant liquidity. The existence of hedging transactions provides tools and means for avoiding risks.
At the same time, futures is also an investment tool. Due to the fluctuation of futures contract prices, traders can make use of arbitrage to earn risk profits through contract spreads.