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1、Chapter 2,The Structure of Forward and Futures Markets,Ref.Don.M.Chance,Chapter 7Learning objectives:To define forward and futures contractsTo describe the institutional characteristics of forward and futures markets,especially the daily settlement procedure in futures markets and the delivery proce
2、ssTo provide information on the futures contracts available for tradingTo describe the process of placing an order to trade a futures contractTo illustrate the role of the clearinghouse in futures tradingTo show how to access futures pricesTo present information on the magnitude and effects of trans
3、action costs in futures tradingTo discuss the regulatory structure of futures and forward markets,1.Definition,A forwawrd contract is an agreement between two parties,buyer and a seller,that calls for the delivery of an asset at a future point in time with a price agreed upon today.A futures contrac
4、t is a forward contract that has standardized terms,is traded on an organized exchange,and follows a daily settlement procedure in which the losses of one party to the contract are paid to the other party.Both have an obligation not the right.,Like an exchange-listed option,however,a futures contrac
5、t can be sold in the market prior to expiration.Like an over-the-counter option,a forward contract can be offset by creating a new forward contract.,2.The development of forward and futures markets,The development of organized marketsChicago Board of Trade(CBOT，芝加哥交易所),1848Chicago Mercantile Exchang
6、e(CME，芝加哥商品交易所），1898Its predecessor:Chicago Produce Exchange(1874)Chicago Butter and Egg BoardIt was the 2nd largest futures exchange in the US.In 2006,CBOT and CME were merged,and became the biggest futures exchange in the world.The 1990s saw an explosion in the development of futues exchanges arou
7、nd the world.,The Development of Financial Futures,1972,Futures contracts on foreign currenciesInternational Monetary Market(IMM)1975,the 1st interest rate futures contract1976,1st futures contract on 90-day U.S.Treasury bills1977,U.S Treasury bond futures1990s,Eurodollar futures contract1980s,stock
8、 index futures contract,Types of Financial Futures,Futures contracts on foreign currencies（外汇期货）：the 1st futures contractInterest rate futures contract（利率期货）Bond Futures（债券期货）LIBOR，HIBOR，etc.Futures contract on equity（股权类期货）Stock Index Futures ContractSingle Stock Futures ContractPortfolio Futures C
9、ontract,The Development of Options on Futures Markets,An option on a futures permits the holder the right to buy,if a call,or sell,if a put,a specific underlying futures contract at a fixed price up to a specific expiration day.In this case,the option is a derivative on a derivative.Thus,two expirat
10、ionsThe options expiration and the futures expirationFor some contracts,the option and futures expire simultaneously,which is equivalent to an option on the underlying spot asset.For most cases,the option expires before but relatively close to the expiration of the futures.The option would trade on
11、the same exchange on which the underlying futures traded.The parallel trading of the option and the underlying created a strong demand for arbitrage trading between these two instruments and led to highly active and efficient markets.,3.The OTC Forward Market,The forward market is large and worldwid
12、e.Its participants are banks,corporations,and governments.The two parties to a forward contract must agree to do business with each other,which means that each party accepts credit risk from the other.Unlike options,In spite of the credit risk,forward contracts offer many advantages.The primary adva
13、ntage is that the terms and conditions are tailored to the specific needs of the two parties.The forward market also has the advantage of being a private market in which the general public does not know tha the transaction was done.This prevents other traders from interpreting the size of various tr
14、ades as perhaps false signals of information.The OTC market is also an unregulated market.,4.中国期货交易所的发展,旧中国期货市场：1892年，上海股份公所，中国最早的期货交易所新中国期货市场：1990年中国郑州粮油批发市场；1999年，确认三大全国性的期货交易所：上海期货交易所：主要金属、能源、化工大连商品交易所：主要豆类、玉米、棕榈油、聚乙烯郑州商品交易所：主要菜籽油、小麦、棉花、白砂糖、PTA、绿豆2006年，中国金融期货交易所2010年4月份正式推出股指期货交易，其标的物为沪深300指数,5.O
15、rganized Futures Trading,A futures exchange is a corporate entity comprised of members.Although some exchanges allow corporate memberships,most members are individuals.The members elect a board of directors,which in turn selects individuals to manage the exchange.The exchange has a corporate hierarc
16、hy consisting of officers,employees,and committees.Although futures exchanges are usually nonprofit corporations,some exchanges are profit-making corporations with publicly traded stock.Such as CME,5.1 Contract Development,One of the exchanges important ongoing activities is identifying new and usef
17、ul futures contracts.Most exchanges maintain research staffs that continuously examine the feasibility of new contracts.When the exchange determines that a contract is likely to be successful,it writes a proposal specifying the terms and conditions and applies to the regulatory authority,such as CFT
18、C,for permission to initiate trading.,How to determine an asset that is a likely candidate for a successful futures contract?,The asset had to be storable.But there are now futures contracts on nonstorable assets such as electricity and even such factors as the wheter,which is not a specific asset a
19、t all.,The existence of an identifiable,volatile spot price and a group of potential users who face a risk of loss if prices move in a certain directionWhether the contract will be actively traded will depend on whether it fills the needs of hedgers and whether speculators are interested enough to t
20、ake risks in it.See case1,5.2 Contract Terms and Conditions,The contracts terms and conditions are determined by the exchange subject to regulatory approval.The specifications for each contract are the size,quotation unit,minimum price fluctuation,grade,and trading hours.,Contract size means that on
21、e contract covers a specific number of units of the underlying asset.Size cannot be too small or too large.The quotation unit is simply the unit in which the price is specified.Miniumu price fluctuation is usually the smallest unit of quotation.For example,Treasury bonds are quoted in a minimum unit
22、 of 1/32.Thus,the minimum price change on a Treasury bond futures contract is 1/32 of 1%of the contract price,i.e.0.0003125(=1%1/32).Since the contract has a face value(contract size)of$100,000,the minimum price change is 0.0003125($100,000)=$31.25.,Contract grade:in the case of agricultural commodi
23、ties there may be numerous grades,each of which would command a quality price differential in the spot market.Trading hoursMost agricultural futures trade for four to five hours during the day.Most financial futures trade for about six hours.But now many exchanges have eletronic trading systems,wher
24、eby trading occurs at terminals that can be placed in offices and even in homes.,5.3 Delivery Terms,The contract must also indicate a specific delivery date or dates,the delivery prodecure,and a set of expiration months.Expiration months:In the case of harvestable commodities,the exchange usually es
25、tablishes expiration months to correspond with harvest months.In nonharvestable commodities,such as financial futures,the exchange usually has followed the pattern of allowing expirations in March,June,September,and December.,Final trading day:This may be any day in the month,but the most common one
26、s are the third Friday of the month and the business day prior to the last business day of the month.First delivery day:Most contracts allow delivery on any day of the month following a particular day.Usually the first eligible delivery day is the first business day of the month.In the case of stock
27、 index futures and other cash-settled contracts,the settlement lccurs on the last trading day or on the day after the last trading day.,Delivery Procedure:For non-cash-settled contracts,the delivery procedure must be specified.The delivrable spot commodity must be sent to any of several eligible loc
28、ations.Financial adjustments to the price received upon delivery are required when an acceptable but lower-grade commodity is delivered.,5.4 Daily Price Limits and Trading Halts,Limit up（涨停板）:the contract price hits the upper limitLimit down（跌停板）:the price moves to the lower limitLimit move（涨跌停）:any
29、 such move,up or downCircuit breaker（断路器）:when prices move rapidly,trading can be stopped for predetermined periods.,例：上海期货交易所黄金期货标准合约,5.5 Other Exchange Responsibilities,The exchange specifies that members meet minimum financial responsibility requirements.It may establish position limits（头寸）,which
30、 restrict the number of contracts that an individual trader can hold.The exchange establishes rules governing activities on the trading floor and maintains a department responsible for monitoring trading to determine whether anyone is attempting to manipulate the market.,6.Futures Traders6.1 General
31、 Classes of Futures Traders,Commission brokers（佣金经纪商）simply execute transactions for other people.Commission brokers can be an independent businessperson who executes trades for individuals or institutions or a representative of a major brokerage firm.Commission brokers make their money by charging
32、a commission for each trade.,Locals（自营交易商）are individuals in business for themselves who trade from their own accounts.They attempt to profit by buying contracts at a given price and selling them at a higher price.Their trading provides liquidity for the public.Locals assume the risk and reap the re
33、wards from their skill at futures trading.Dual trading（双向交易）：some traders engage in dual trading,in which they trade for themselves and also trade as brokers for others.,6.2 Classification by Trading Strategy,Hedger（套期保值者）：holds a position in the spot market,and takes a futures contract that is oppo
34、site to the position in the spot market reduces the risk.Speculators（投机者）：attempt to profit from guessing the direction of the market.They play an important role in the market by providing the liquidity that makes hedging possible and assuming the risk that hedgers are trying to eliminate.,Spreaders
35、（差额交易者）：use futures spreads to speculate at a low level of risk,which involves a long position in one contract and a short position in another.Intercommodity&IntracommodityArbitrageurs（套利者）：attempt to profit from differences in the prices of otherwise identical spot and futures positions.When prices
36、 get out of line with these theoretical predictions,arbitrageurs enter the market and execute trades that bring prices back in line.,6.3 Classification by Trading Style,Scalper（抢帽子者）attempt to profit from small changes in the contract price.They seldom hold their positions for more than a few minute
37、s.They trade by using their skill at sensing the markets short-term direction and by buying from the public at the bid price and selling to the public at the ask price.Because they operate with very low transaction costs,they can profit from small moves in contract prices.,Day traders（当日交易商）hold the
38、ir positions for no longer than the duration of the trading day.They attempt to profit from short-term market movements.They hold their positions much longer than do scalpers.They are unwilling to assume the risk of adverse news that might occur overnight or on weekends.Position traders（头寸交易商）hold t
39、heir transactions open for much longer periods than do scalpers and day traders.They believe they can make profits by waiting for a major market movement.It may take as much as several weeks.,6.4 Off-floor Futures Traders,In addition to individuals and institutions who directly participate in tradin
40、g,there are certain other participants.Here institutions include banks and financial intermediaries,investment banking firms,mutual funds,pension funds,and other corporations.An introducint broker（IB，引介经纪商）is an individual who solicits orders from public customers to trade futures contracts.IBs do n
41、ot execute orders themselves,nor do their firms.Rather,they subcontract with FCMs to do this.The IB and FCM divide the commission.,A commodity trading advisor（CTA，商品交易顾问）is an individual or firm that analyzes futures markets and issues reports,gives advice,and makes recommendations on the purchase a
42、nd sale of contracts.CTAs earn fees for their services but do not necessarily trade contracts themselves.A commodity pool operator（CPO，商品交易合作基金运营商）is an individual or firm that solicits funds from the public,pools them,and uses them to trade futures contracts.The CPO profits by collecting a percenta
43、ge of the assets in the fund and sometimes through sales commissions.An associated person（AP，期货交易员）is an individual associated with any of the above individuals or institutions or any other firm engaged in the futures business.,6.5 Forward Market Traders,The forward market is dominated by large inst
44、itutions,such as banks and corporations.A typical forward market trader is an individual sitting at a desk with a telephone and a computer terminal.Forward and futures markets are linked closely.Forward contracts cannot be reversed by futures contracts.However,a trader will do a forward contract and
45、 then immediately do a futures contract to hedge the forward market risk.,7.The Mechanics of Futures Trading7.1 Steps,Open an account with broker:make a minimum depositPlacing an orderA market order（市场交易指令）instructs the floor broker to obtain the best price.A limit order（限价交易指令）specifies a maximum p
46、rice to pay if buying or a minimum price to acept if selling.A good-till-canceled order（撤销前有效交易指令）remains in effect until canceled.A day order（当日交易指令）stays in effect for the remainder of the day.A stop order（止损指令）is placed at a price lower than the current price.If the market price falls to the spec
47、ified price,the broker is instructed to sell the option at the best available price.,How to tradeOpen outcry（公开喊价方式）:Under a pit trading system,when an investor places an order,the broker phones the firms trading desk on the exchange floor and relays the order to the firms floor broker.The floor bro
48、ker goes to the pit in which the contract trades.Hand signals and a considerable amount of verbal activity are used to place bids and make offers.Then the order is filled,the information is relayed back,ultimately to the brokers office,whereupon the broker telephones the customer to confirm the trad
49、e.Electronic trading（电子交易方式）Now the futures exchanges are fully automated so that bids and offers are submitted through a computer and trades are executed off the floor.Some systems will even match buyer and seller.,7.2 The Role of the Clearinghouse（清算所）,At this point in the process,the clearinghous
50、e intervenes.Clearinghouse is an independent corporation,and its stockholders are its member clearing firms.Each firm maintains a margin account with the clearinghouse and must meet minimum standards of financial responsibility.The clearinghouse assumes the role of intermediary to each transaction.I
