Futures, usually futures contracts. It is a standardized contract made by the futures exchange, which stipulates to deliver a certain number of subject matter at a specific time and place in the future. This topic can be commodities, financial instruments or financial indicators. 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; However, 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, and the trader of the futures contract 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.
The basic economic function of futures:
1, price found
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.
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 delivery mechanism, the spot price of futures contracts converges during delivery.
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.