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Mechanics of Futures Markets: John C. Hull 2012 1
Mechanics of Futures Markets: John C. Hull 2012 1
Mechanics of Futures Markets: John C. Hull 2012 1
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Futures Contracts
Available on a wide range of assets Exchange traded Specifications need to be defined:
What can be delivered, Where it can be delivered, & When it can be delivered
Settled daily
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Spot Price
Time
Time
(a)
(b)
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Margins
A margin is cash or marketable securities deposited by an investor with his or her broker The balance in the margin account is adjusted to reflect daily settlement Margins minimize the possibility of a loss through a default on a contract
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
..
6 7 8 .. 16
4,020
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Broker
Broker
Long Trader
Short Trader
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Broker
Broker
Long Trader
Short Trader
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
Some Terminology
Open interest: the total number of contracts outstanding
equal to number of long positions or number of short positions
Settlement price: the price just before the final bell each day
used for the daily settlement process
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Low
69.21
70.42 73.17 76.51
Settle
71.51
72.54 75.23 78.53
Change
2.76
2.44 2.19 2.00
Volume
6,315
3,746 5,055 4,175
Open Int
388,902
115,305 196,033 100,674
Jul 2010
Aug 2010 Dec 2010 Dec 2011
70.06
71.25 74.00 77.01
Dec 2012
78.50
80.21
78.50
80.18
1.86
1,258
70,126
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Delivery
If a futures contract is not closed out before maturity, it is usually settled by delivering the assets underlying the contract. When there are alternatives about what is delivered, where it is delivered, and when it is delivered, the party with the short position chooses. A few contracts (for example, those on stock indices and Eurodollars) are settled in cash
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Questions
When a new trade is completed what are the possible effects on the open interest? Can the volume of trading in a day be greater than the open interest?
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Types of Orders
Limit Stop-loss Stop-limit Market-if touched Discretionary Time of day Open Fill or kill
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Regulation of Futures
In the US, the regulation of futures markets is primarily the responsibility of the Commodity Futures and Trading Commission (CFTC) Regulators try to protect the public interest and prevent questionable trading practices
Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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Options, Futures, and Other Derivatives, 8th Edition, Copyright John C. Hull 2012
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