This subject matter, also known as the underlying asset, can be a commodity, such as copper or crude oil, a financial instrument, such as foreign exchange and bonds, or a financial indicator, such as three-month interbank offered rate or stock index. If the buyer of a futures contract holds the contract until the expiration date, he is obliged to purchase the subject matter corresponding to the futures contract; If the seller of a futures contract holds the contract until it expires, he is obliged to sell the subject matter corresponding to the futures contract (some futures contracts do not make physical delivery when they expire, but settle the difference, for example, the expiration of stock index futures refers to the final settlement of the futures contract in the opponent according to a certain average value of the spot index). Of course, traders of futures contracts can also choose to reverse the transaction before the contract expires to offset this obligation.
The broad concept of futures also includes option contracts traded on exchanges. Most futures exchanges list both futures and options.
Futures trading is an organized trading method developed on the basis of spot trading and conducted by buying and selling standardized futures contracts on futures exchanges.
In the futures market, most futures contracts bought and sold by traders are closed in the form of hedging before expiration. In other words, people who buy futures contracts can sell them before the contract expires; People who sell futures contracts can buy futures contracts to close their positions before the contract expires. It is allowed to buy before selling or sell before buying. Generally speaking, physical delivery in futures trading is only a small part.
The object of futures trading is not the entity (subject matter) of commodities, but the standardized contract (subject matter) of commodities.
The purpose of futures trading is to transfer price risk or gain risk profit.
The futures market has the following functions in stabilizing and promoting the development of the market economy:
(A) the function of avoiding price risk. The most prominent function of the futures market is to provide producers and operators with means to avoid price risks. That is, producers and operators hedge their futures markets to avoid the risks caused by price fluctuations in spot trading, lock in production and operation costs and realize expected profits. In other words, the futures market makes up for the shortage of the spot market.
(2) Price discovery function. Under the condition of market economy, prices are formed according to market supply and demand. Traders from all directions in the futures market have brought a lot of supply and demand information, and the transfer of standardized contracts has increased market liquidity. The price formed in the futures market can truly reflect the supply and demand situation, and at the same time provide a reference price for the spot market, which plays the role of "discovering prices".
(3) Conducive to market supply and demand and price stability. First of all, the futures market trades futures contracts that will be fulfilled in a certain period of time in the future. It can make buyers and sellers predict the future supply and demand of commodities according to the futures price before the start of a production cycle, guide the production and demand of commodities, and play a role in stabilizing supply and demand. Secondly, due to the involvement of speculators and the multiple transfers of futures contracts, the price risks that buyers and sellers should bear are evenly distributed to many traders involved in the transaction, which reduces the scope of price changes and the risks that each trader bears.
(4) Save transaction costs. The futures market provides a safe, accurate and fast trading place for traders, improves trading efficiency, avoids the occurrence of "triangle debt", and is conducive to the establishment and perfection of market economy.
(5) Futures trading is an important investment tool, which helps to make rational use of social idle funds.