1. Money

What are Futures?

Description of Futures Markets and Contracts

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Futures markets are the most popular day trading markets. They offer a wide variety of markets, can be traded at very low cost (i.e. low commission), and do not have any day trading restrictions like stocks.

Futures markets are traded at futures exchanges like the DTB (Deutsche Boerse) in Europe, and the CME Group in the US.

Popular Futures Markets

Futures markets include index futures like the following :

  • DAX - The primary index future of the DTB (Deutsche Boerse) in Europe
  • CAC40 - The primary index future of MONEP (Euronext Paris) in Europe
  • YM - The mini Dow Jones index future of ECBOT (CME Group) in the US
  • ES - The mini S & P 500 index future of Globex (CME Group) in the US

and currency futures like the following :

  • EUR - The Euro to US Dollar future of Globex (CME Group) in the US
  • GBP - The British Pound to US Dollar future of Globex (CME Group) in the US
  • CHF - The Swiss Franc to US Dollar future of Globex (CME Group) in the US
  • AUD - The Australian Dollar to US Dollar future of Globex (CME Group) in the US

and commodity futures like the following :

  • ZG - The 100 troy ounce Gold future of Globex (CME Group) in the US
  • ZI - The 5000 ounce Silver future of Globex (CME Group) in the US

Futures Contracts

Futures markets trade futures contracts, which specify that the underlying index, currency, or commodity will be bought or sold for a specific price on a specific date in the future (known as the expiration date). Day traders trade futures contracts to make a profit on the difference between the buying price and the selling price, rather than to ever actually own the underlying commodity. Even so, day traders need to know when the current futures contract will expire, so that they can make sure that they do not have any open positions at that time.

Futures contracts are traded by both day traders and longer term traders, but also by non traders with an interest in the underlying commodity. For example, a grain farmer might sell a futures contract to guarantee that he receives a certain price for his grain, or a livestock farmer might by a futures contract to guarantee that he can buy his winter feed supply at a certain price. Either way, both the buyer and the seller of a futures contract are obligated to fulfil the contract requirements at the end of the contract term. Day traders are not so concerned about these obligations because they do not keep the futures contract until it expires.

Symbols and Tick Values

The trading symbol for futures markets consists of the underlying, the expiration date, and the exchange. For example, the Euro to US Dollar currency future that expires in December 2007 would have the symbol EUR-200712-GLOBEX (in Sierra Chart format). The contract specifications for futures markets include the minimum price change (known as the tick size), and the point value or multiplier, with which the value per minimum price change (tick) can be calculated. Continuing with the previous example, the tick size for the EUR is 0.0001, and the multiplier is $ 125000, so the value per tick is calculated as 0.0001 X $ 125000 = $ 12.50 per tick. This means that for every 0.0001 in price change, a trade's profit or loss would change by $ 12.50.

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