Financial forward refers to a contract signed by both parties to buy or sell a financial asset at a certain price at a certain time in the future.
Financial swap refers to a contract in which two parties exchange future cash flows according to pre-agreed rules.
I. Classification and characteristics of financial forward contracts
According to the nature of the underlying assets, financial forward contracts mainly include forward interest rate agreements, forward foreign exchange contracts and forward stock contracts.
Forward interest rate agreement is an agreement that the buyer and the seller agree to pay the discounted amount of the difference between the agreed interest rate and the reference interest rate to the other party at a certain time in the future (liquidation day) according to the agreed nominal principal and term.
Forward foreign exchange contract refers to a contract in which both parties agree to buy and sell a certain amount of foreign exchange at an agreed forward exchange rate at a certain time in the future.
Forward stock contract refers to an agreement to deliver a certain number of single stocks or stock combinations at a specific price on a specific date in the future.
As a derivative of OTC, financial forward contracts have the following characteristics compared with futures and option derivatives traded on the floor:
1. Financial forward contracts are conducted off-site through modern communication means, and banks give two-way pricing, directly between banks and between banks and customers.
2. The two sides of financial forward contract transactions know each other, and each transaction is a direct meeting between the two sides, which means accepting the corresponding risks of the participants.
3. Financial forward contract transactions do not need margin, and Liu's risk is borne by changing the forward price difference between the two parties. Most transactions in financial forward contracts will lead to delivery.
4. The amount and maturity date of financial forward contracts are flexible, sometimes only the minimum amount of the contract amount is stipulated, and the maturity date often exceeds the maturity date of futures.
Second, the meaning of financial swaps and trading conditions
Financial swap refers to a financial contract in which two or more parties exchange certain cash flows within an agreed time according to the agreed terms. Financial swap mainly includes interest rate swap and currency swap (including cross currency swap with both interest rate swap and currency swap characteristics). A typical financial swap transaction contract usually includes the following aspects: the two parties to the transaction, the face value of the contract, the swap currency, the swap interest rate, the expiration date of the contract, the swap price, the rights and obligations, the price difference, the agency fee, etc.
A major feature of swap is that it is a customized trading method. Both sides of the swap can choose the size of the transaction amount and the length of the term.
The main body of financial swap market transactions is generally composed of swap brokers, swap dealers and direct users.
Make use of the comparative advantages of both parties in financing costs to conduct swap transactions. Specifically, the exchange conditions can be summarized as two aspects:
1. Both parties to the transaction have demand for each other's assets or liabilities.
2. Both parties have comparative advantages in these two assets or liabilities.
Third, the difference between financial futures market and financial forward market.
First of all, the financial futures market is an organized market, which is generally conducted on exchanges and is a tangible market. The forward trading market is mostly conducted by banks and brokers, and there is generally no fixed trading place and trading time. It is an invisible market, trading mainly through modern communication facilities and networks.
Secondly, the financial futures market is a market with strict rules and procedures. Financial futures trading is carried out in standardized contracts under the rules formulated by futures exchanges, and there is a strict margin system. The transaction is actually carried out in the "clearing center" of the exchange. Forward market transactions lack a set of formal and strict rules. Forward contracts are made according to the needs of both parties to the transaction and are directly reached by the participants. Buyers may require an early delivery.
Thirdly, the financial futures market is a more standardized and standardized market. The traded financial commodities are standardized, and their prices, yields and quantities are homogeneous, unchangeable and standardized; Trading units are standardized, and futures exchanges all adopt large integers, and there can be no remainder; Standardization of delivery date; The formation of the bid-ask price is public, and the transaction price is determined by the public auction of the exchange.
Four, the principle of stock price index futures hedging
Stock index futures (also known as stock index futures) are futures trading contracts based on stock indexes that reflect the stock price level.
In order to prevent the risk of stock price fluctuation, we can preserve the value by selling or buying stock index futures contracts when we can't grasp the future trend of the stock market. The principle of stock index hedging is: if stock holders want to avoid or reduce the losses caused by stock price decline, they must sell stock index futures in the futures market, that is, short. If the stock price falls as expected, the profits gained from shorting can be used to make up for the losses caused by the market decline in their stock assets. If an investor wants to buy a stock, but can't buy it because of the temporary shortage of funds, he can buy index futures in the futures market with less funds first, that is, to be a long position. If the stock price index goes up, the profit gained by the bull can be used to offset the loss when he didn't buy the stock at that time.
Verb (abbreviation of verb) The function of financial futures market.
1. Hedging and risk transfer.
Using the financial futures market to hedge and transfer risks is mainly to use futures contracts as a temporary substitute for buying and selling financial securities in the futures market in the future, so as to hedge the assets and liabilities it has now or will have in the future.
2. Profit from speculation, take risks and lubricate the market.
The change of financial market enables speculators to speculate in the futures market, gain huge profits from the price fluctuation of the futures market through margin trading, and bear huge risks at the same time. Speculation in the futures market not only encourages price fluctuations, but also lubricates, creates and stabilizes the market.
3. Make the adjustment functions of supply and demand mechanism, price mechanism, efficiency mechanism and risk mechanism be further embodied and brought into play.
The price in the futures market is determined by the open competition between the two parties, which is representative and universal and represents the comprehensive expectation of all market participants for the future market. The transaction price can be said to truly reflect the opinions, needs and forecasts of both parties; It is a comprehensive judgment of market participants on current and future capital supply and demand, supply and demand of some financial commodities, price change trend, risk degree and income level, an important reference for producers and investors to make production and investment decisions, a basis for determining reasonable production, investment and price, and thus an important basis for adjusting resource allocation.
Types of intransitive verbs financial options
1. According to the nature of option rights, options can be divided into call options and put options.
Call option refers to a contract in which the option buyer has the right to buy a certain number of financial instruments from the option seller at a predetermined time and at the strike price. In order to obtain this right, the option buyer needs to pay a certain option fee to the option seller when purchasing the option.
Put option means that the option buyer has the right to sell the specified financial instrument to the option seller at a fixed price at a predetermined time. In order to obtain this kind of put right, the option buyer needs to pay a certain option fee to the option seller when purchasing the option.
2. According to the expiration date of options, options can be divided into European options and American options.
European option means that the option holder can only exercise the option on the expiration date.
American options allow option holders to exercise options at any time before the expiration date.
3. According to the difference between the final price of the underlying assets and the market price, options can be divided into in-price options, parity options and out-of-price options.
In money means that if the option is executed immediately, the buyer has positive cash flow (option fee is not considered here), and the option has intrinsic value.
At the money means that if the option is executed immediately, the buyer's cash flow is zero.
Paying money means that if the option is executed immediately, the buyer has negative cash flow.
4. According to the trading place, options can be divided into OTC options and OTC options.
Exchange-traded options refer to standardized options contracts, with a fixed number, which are traded in a formal way.
OTC option, also known as OTC option, means that the option seller wants to meet the specific needs of a buyer, and the buyer and the seller directly reach a transaction by telephone.
5. According to the nature of the underlying assets, options can be divided into spot options and futures options.
Spot option refers to an option with various financial instruments themselves as the subject matter of the option contract.
Futures option refers to an option with various financial futures contracts as the object of the option contract.
Financial futures refers to a contract signed by both parties to buy or sell a financial asset at a certain price in a future delivery month. The main difference between it and forward contracts is that futures contracts are standardized contracts traded on exchanges.
The buyer of a financial option contract has the right to buy a certain number of financial products at the final price in a certain period of time in the future, while the seller has the obligation to fulfill the delivery obligation to the buyer at that time.