In order to transfer the risk of market price fluctuation, it refers to the form of buying and selling futures contracts in an open competition on commodity exchanges through brokers.
Main characteristics of futures trading
1. The terms and conditions of a futures contract, such as commodity variety, trading unit, contract month, margin, quantity, quality, grade, delivery time and delivery place, are established and standardized, and the only variable is price. The standards of futures contracts are usually designed by futures exchanges and listed by national regulatory agencies.
2. The futures contract is concluded under the organization of the futures exchange and has legal effect, and the price is generated by public bidding in the trading hall of the exchange; Most foreign countries adopt public bidding, while our country adopts computer trading.
3. The performance of futures contracts is guaranteed by the exchange, and private transactions are not allowed.
4. Futures contracts can fulfill or terminate their contractual obligations through the settlement of spot or hedging transactions.
Extended data:
Transaction characteristics
1, contract standardization
Futures trading is standardized by buying and selling futures contracts. The standardization of futures contracts means that all terms of futures contracts except price are stipulated by futures exchanges in advance, which has the characteristics of standardization.
The standardization of futures contracts has brought great convenience to futures trading, and both parties need not negotiate on the specific terms of the transaction, which saves trading time and reduces trading disputes.
2. Centralized trading
Futures trading must be conducted in a futures exchange. The futures exchange implements the membership system, and only members can enter the market for trading. Those off-site customers can only entrust trading agents, that is, futures brokerage companies to participate in futures trading. Therefore, the futures market is a highly organized market, and strict management system is implemented, and futures trading is finally completed in the futures exchange.
3. Two-way trading and hedging mechanism
Two-way trading, that is, futures traders can buy futures contracts as the beginning of futures trading (called buying positions) or sell futures contracts as the beginning of trading (called selling positions), commonly known as "short selling".
There is also a hedging mechanism associated with the characteristics of two-way trading. In most futures trading, when the contract expires, it is not fulfilled by physical delivery, but by trading in the opposite direction to the opening direction.
Specifically, after buying a warehouse, you can cancel the performance responsibility by selling the same contract, and after selling a warehouse, you can cancel the performance responsibility by buying the same contract.
The characteristics of two-way trading and hedging mechanism in futures trading attract a large number of futures speculators to participate in trading, because in the futures market, speculators have double profit opportunities, and when futures prices rise, they can buy low and sell high to make profits;
When prices fall, they can sell high and buy low for profit, and speculators can avoid the trouble of physical delivery through hedging mechanism. The participation of speculators has greatly increased the liquidity of the futures market.
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