I. Commodity characteristics of futures contracts
(1) is suitable for storage.
An economic function of the futures market is to allocate inventory in the spot market. Holders with large inventories can have two choices-as long as the goods do not rot or decrease during the holding period, they can either sell the inventory now or hold the inventory for later sale. The futures market has become an integral part of the spot sales business, providing value preservation services for inventory holders to avoid the risk of price changes. Therefore, the early futures market followed the principle that commodities were not perishable and suitable for storage. Commodities traded in futures mainly include grain, cotton, coffee, rubber and metals. However, with the passage of time, the concept of proper storage is expanding.
First of all, technological progress has further expanded the standard of suitable storage. For example, advanced refrigeration technology can greatly extend the shelf life of perishable goods, and this breakthrough makes goods that are not easy to store become storable. Commodities that are not traditionally suitable for futures trading have the conditions for futures trading, such as frozen eggs, butter and orange juice futures contracts.
Secondly, the price discovery function of the futures market has changed the standard of proper storage. Tomek and Gray (1970) think: "If a commodity does not need to meet future consumption in the form of inventory, and the inventory cost is zero, then today's futures price is the forecast of the spot price in the next month, which is based on the available information related to the future supply and demand of commodities, such as the quantity of commodities, the availability of related substitutes, and the expected changes of supply and demand of this commodity at different price levels." Then, commodities that can be produced continuously and are not easy to store (such as live animals, fresh eggs and soybean meal) can be traded in futures just like seasonal, discontinuous and easy-to-store inventory commodities (such as corn). As long as a commodity can be obtained at any time through production, the commodity used for futures delivery does not have to be in stock now.
Compared with the real thing, the storage of financial products is relatively simple, such as the small size and light weight of national debt, which is very easy to keep; Although the physical storage of money is also easy, due to the use of modern payment and settlement methods such as electronic remittance, it is no longer necessary to use cash for delivery; For stock index futures, because cash delivery is adopted, there is no need to use physical stocks for delivery. So for financial products, the problem of storage and custody has been solved.
(2) homogeneity.
The obvious feature of futures contracts different from forward contracts is that the subject matter of transactions must be standardized commodities. If this homogeneity condition cannot be met, the exchange will not be able to settle accounts for different market participants.
In order to complete the transaction subject matter without visual inspection, detailed writing and oral description (high transaction cost), it is necessary to describe the transaction subject matter objectively and standard in the process of contract design, so that both buyers and sellers know what kind of goods they can buy or must deliver. Hoffman (1932) thinks that in order to simplify and make the delivery grade accurate, it must be based on measurable physical quantities. If a commodity lacks a quality standard system generally recognized by the government or industry (so that it is impossible to distinguish the same grade), then it is doomed to fail to meet the requirements of futures trading. Tea and tobacco are more commodities that need personal evaluation, so it is difficult to distinguish grades by standard methods and it is impossible to conduct futures trading. It should be said that this feature is more reflected in the varieties of agricultural products.
(3) Price fluctuation.
Price fluctuation plays an important role in attracting two basic participants-hedgers and speculators-to enter the futures market.
(4) Sufficient spot scale.
There should be sufficient spot supply and demand for futures commodities for three reasons: first, adequate commodity supply helps to avoid price monopoly. If the supply of a commodity is limited, it will be very easy for participants with large financial funds to control the price. Second, a large number of market participants help to provide a large number of potential hedgers for futures trading. Third, an adequate spot market helps to provide a continuous and orderly supply and demand force, which is conducive to the realization of delivery and spot arbitrage.
(5) Unlimited supply.
Unlimited supply of goods has two meanings: first, there is no government regulation or monopoly in the market; The second is that the distribution cost is lower.
(6) OTC trading.
Because there is no exchange as the guarantor of performance, the forward contract faces the risk of counterparty default, and the forward contract is only a bilateral agreement, so it is difficult to close the position before the settlement date, while the market participants in the futures market can hedge and close the position at any time before the delivery date.