Analysis of Asset Allocation

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Options' risks can be measured: visit the Greeks.

FUTURES : An Introduction
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DEFINITION

A "futures contract" is an agreement to buy or sell an asset at a specific date in the future for a fixed price. Unlike options, a "futures contract" is not a right but well an obligation.

Every discipline has its own special vocabulary. It is also the case with futures. To avoid needless repetition, we will define them now.

Terminology.

  • The fixed price agreed to exchange the underlying asset is known as the futures price.
  • The investor who agrees to buy the futures contract has what is termed a long futures positions.
  • The investor who agrees to sell the futures contract has what is termed a short futures positions.
  • A commodity futures contract is a contract where the underlying asset is a commodity.
  • A financial futures contract is a contract where the underlying asset is a financial instrument such as a bond, an index, a currency, or an interest rate.

MAJOR EXCHANGES.

Throughout the world, many exchanges trade futures contact. Among them we can mention:

  • The Chicago Board of Trade (CBOT).
  • The Chicago Mercantile Exchange (CME).
  • The New York Futures Exchange (NYFE).
  • The London International Financial Futures Exchange (LIFFE).
  • The Swiss Options and Financial Futures Exchange (SOFFEX).
  • The European Options Exchange (EOE).
  • The Hong Kong Futures Exchange (HKFE).
  • The Singapore International Monetary Exchange (SIMEX).
  • The Tokyo International Financial Futures Exchange (TIFFE).
  • The Marché à Terme International de France (MATIF).
  • ...

In the next section, we will analyze the specifications of the futures contract.

 


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