Welcome

International Islamic University, Islamabad

Faculty of Management Science

Future Markets and

Contracts

Presented by:
Ghawsodin Haidari
Mohammad Asif
Ziarmal
Muzammil Shahzad
Awais bin Nawaz
Atiq ur Rehman

Layout
Introduction
Future Trading
The Clearing house, Margin, and Price
Limits
Delivery and Cash Settlement
Future Exchanges
Types of Future Contracts
Conclusion

Introduction

 History of Future Markets

Japanese rice market18th, 1840s in the Chicago
1848 formed (CBOT), created to arrive.
Trading in secondary market, Clearing houses provided
Exchanges (Chicago mercantile, the new york, Eurex, and London
international financial future exchange)
Public Standardized Transactions
Future transaction is reported to futures exchange, clearing house,
and regulatory agency.
Prices are recorded and available from price reporting services and
even on internet
Price established by two parties, exchange establishes other terms
The exchange determines a set of expiration date, contract size,
what hours of the day and at what physical location (Trading floor)

 Homogenization and Liquidity

Standardizing the instruments make it more comfortable to sell it in the
secondary market
Allows participants to offset the position before expiration.

The Clearing House, Daily settlement, and performance guarantee

Guarantee performance of one to another by mechanism called clearing houses
Gains and losses are credited and charged on daily basis called daily settlement
or marking to market

Regulation
FCs are regulated at federal government level
State and regional law may also apply
In the US commodity future trading commission regulates FCs
These are to protect the general pubic and other participants

MohammadAsifStanikzai

FUTURETRADING
Buyer,Seller,FutureDate,AndPrice
DeterminesToday
LongPosition
ShortPosition
Offsetting

TypesofTrading

FloorTrading(Pit
Trading)

ElectronicTrading

Ziarmal
RegistrationNo.7643FMS/MBA/F16

THECLEARINGHOUSE,MARGINS,ANDPRICE
LIMITS.

THE CLEARINGHOUSE.

Margins
What is Margin?
What is Initial Margin Requirement?
What is Maintenance Margin Requirement?
Margins in Stock Market and Future Market.
What is Daily Settlement?
What is Settlement Price?
What is Variation Margin?

 Example

Limits

PriceLimits
LimitUp
LimitDown
LockedLimit

MuzammalShahzad

Delivery
Physical Delivery of Asset
Closeout
Gain or Loss
Delivery Option

Cash Settlement
No Physical Delivery of Asset
Cash Settlement in Future Contracts
Cash Settlement Advantage over
Physical Delivery

HafizAwaisbinNawaz

Futures Exchanges

What are futures Exchanges?

A future Exchange is a legal corporate

entity whose share holders are its
members.
The members own ownerships, known as
seats.
Exchange members have privilege of
executing transactions on the exchange.

Types of Members
Members can be of two types:
Floor Traders: Floor traders or
locals are market makers, ready
to buy & sell by quoting a bid &
ask a price.
Brokers: Also called future
commission merchants (FCMs)
execute transactions for other
parties off the exchange.

Styles of trading by
locals:
Various styles of trading by locals are:
Scalper:
Day Trader:
Position Trader:

On the Floor Trading:

Floor trading in USA takes place in pits,
where traders stand & conduct
transactions.
A traders shouts & uses a set of hand
signals.
A trade is done by 2 traders who agree
on a price & number of contracts.
Forms are filled & transactions are

Off the floor Trading:

It is also called Electronic Trading.

The traders dont stand in pits.
They dont see each other at all.
They sit at computer terminals which
enable them to see the bids & offers of
other traders.
Transactions are conducted by a mouse
click or an entry from a keyboard.

AteequrRehman

TypesofFutureContracts
TherearetwotypesofFutureContracts:
1) CommodityFutureContracts:
Agriculturalproducts
Metal
PetroleumProducts

2) FinancialFutureContracts:
Stocks
Bonds
Currencies

Financial Future Contracts

SometypesofFinancialFutureContracts
include:
1. StockIndexFutureContracts
2. CurrencyFutureContracts

Cont.
1. StockIndexFutureContracts:
Quotedintermsofprice
Multiplier
Forexample;S&P500indexisat1183,aftertwomonths
futurecontractitsquotedpriceis1187.Suppose,itsmultiplier
is$250thentheamountwillbe1187($250)=$296,750.
CashSettlement

Cont.
2. CurrencyFutureContracts:
Transferable
Legallybinding
Tradeofcurrencypairsatexpirationdate
Hedgeagainstforeignexchangerisk
Deliveryofcurrencyatexpirationdate

Thank you

Q&A