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“FUTURES” CONTRACT

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WHAT IS A “FUTURES” CONTRACT ?“
It’s a delivery between two parties to buy or to sell an asset, with the following characteristics:

  • (future price); for defining an amount of the asset.
  • (delivery place), for date and place.

HISTORY
Since some time ago, Futures are the most active financial trading over the world.

The first futures exchange market was the Dōjima Rice Exchange in Japan ( begin of 18th Century ), to meet the needs of the samurai who - being paid in rice, and after a series of bad harvests - needed a stable conversion to coin.

HOW DOSE IT WORK ?
It depends on the expectation of increasing and decreasing of the asset in the future.

As the futures price will generally change daily, the difference between the prior agreed price and the daily futures price is adapted daily, called “variation of margin”.

SPECIFIC TERMINOLOGY
Most Futures contracts have five characters codes. The first two characters identify the contract type, the third character: the month and the last two characters: the year.

Most used months for payment ( usually per trimester ):

  • March: H
  • June : M
  • September: U
  • December: Z

Example: Aluminium - June 2020 = ALM 20