KIC000062 - Futures and Forwards Futures Markets Forw-ard...

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Futures Markets Key Terms for Futures Contracts • Futures price Today's agreed-upon price F o for the transaction to take place at maturity, time T. • Long position Agrees to buy underlying later, • Short position Agrees to sell underlying later. Profits on positions at maturity Long: spot minus original futures price (S, - F0) Short: original futures price minus spot (Fo - ST) Trading Mechanics • Clearinghouse Acts as a to all buyers and sellers. ,. Net position is 7 re Yb )r Obligated to deliver or supply delivery )0 R:uires m~f\ from traders in futures Closing out posiuons , .g,.!H~ the trade )r Take or make delivery , Most trades are rder<'e<\ actual delivery and do not involve Futures and Forwards Forw-ard An agreement calling for a future delivery of an asset at an agreed-upon price. No money changes hands today. Futur~~i1ar ~ a forward, but has highly ft!\D~1JC features. No money changes hands today (but margin is required). Key differences in futures
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000062 - Futures and Forwards Futures Markets Forw-ard...

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