Syndicate
Operation of Futures
The operation of futures consists in the compromise to buy or sell assets in a future date, at predetermined price when signing the agreement. In this way, the operator can reduce the risk of fluctuation due that he already knows the future price of the asset. To be able to do these type of operations you have to deposit a guarantee in the contracting center, which fluctuates in between 5 and 10% of the total value of the contract.
The operation of futures cannot only be done with financial assets, but it is also possible to do it with raw materials or currency, for example.
The market of financial futures exists in the worlds main stock exchange markets since the decade of the seventies. This new financial tool comes from the markets of futures on raw materials.
The most important difference between an option contract and a contract of futures is that the first is a right for buying or selling something during a period of time. However, a contract of futures is a dealing contract and because of it is of mandatory fulfillment on both contracting parties.
The contracts of futures is standardized in all its terms (terms, assets and margin of guarantee) and are guaranteed by the market in which they are negotiated. These are precisely the differences with the so called forward contracts (term contracts) in which there is freedom to negotiate among the parties and the guarantees atre given by the contractors.
The futures as the o0ptions can be contracted on organized markets that dispose of a clearing house (compensation chamber). In this case they are standardized products as for the quantity of underlying and expiration assets.
When the futures or options are traded freely between two parties, without being subject to specific rules of negotiation it is denominated as OTC (over-the-counter).
The contracts or futures are used to cover up the risks of quotation and also to speculate. The two most common strategies in the contract of futures are the following:
purchase (long position): the buyer foresees that the price of the asset will rise further on and that is why he is interested in fixing a price today. In case the price of the assets rise, the purchase will obtain a profit. If on the contrary, he will suffer a loss.
Sale (short position): the vendor foresees the price of the asset will drop further on and that is why he is interested in fixing the price today. In case the price of the asset drops, the vendor will obtain a profit. If on the contrary, he will suffer a loss.