im-18-4e - CHAPTER EIGHTEEN FUTURES MARKETS CHAPTER...

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CHAPTER EIGHTEEN FUTURES MARKETS CHAPTER OVERVIEW This chapter describes the futures markets, trading mechanics involved with futures trading, strategies and risks associated with futures trading and pricing of futures contracts. The chapter provides background material on stock index contracts, describes how such contracts can be used for hedging and speculation and discusses the concept of index arbitrage. LEARNING OBJECTIVES After studying the chapter students should be able to describe basic characteristics of futures contracts, short and long positions and profits from such positions, and margin trading arrangements for futures. Students should be able to develop prices for stock index contracts and describe how such contracts can be used to speculate and hedge. PRESENTATION OF CHAPTER MATERIAL 1. Terms and Types of Contracts Basic elements of futures and forwards are described in T 18-2. Futures contracts are more standardized than are forwards. Performance on futures contracts is warranted by the clearinghouse. Performance is not warranted on forward contracts. Futures contracts are marked to market and can be traded on secondary markets. With a forward contract there is no active secondary market.
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