0% found this document useful (0 votes)

67 views

Quanttrading 1b

The document discusses futures contracts and derivatives trading. It begins by defining what a futures contract is, as an agreement between two parties to buy or sell an asset at a fixed future date at an agreed upon price. It provides an example contract for the sale of wheat. It describes key aspects of futures contracts like the expiry date, settlement price, and how traders can benefit depending on whether the settlement price is higher or lower than the agreed upon price. It also outlines four important differences between trading futures versus the underlying assets, such as the ability to take short positions, daily marking to market, and margin requirements. Finally, it discusses the different types of traders - hedgers, speculators, and arbitrageurs - and their motiv

Uploaded by

Ratnadeep Bhattacharya

Available Formats

Download as PDF, TXT or read online on Scribd

0% found this document useful (0 votes)

67 views

Quanttrading 1b

Uploaded by

Ratnadeep Bhattacharya

Available Formats

Download as PDF, TXT or read online on Scribd

You are on page 1/ 93

What is trading?

A short position
Futures contracts
are Derivatives

Stocks
Bonds
Derivatives

are all different

types of securities

Stocks
Bonds

Till, now we have

mostly spoken
about
stocks
Derivatives

Derivatives
Derivatives are
contracts whose value
depends on the value of
some other entity

A stock, bond, currency,

commodity etc

Derivatives
A stock, bond, currency,
commodity etc
Derivatives allow folks to
bet on the value of the
underlying asset without
actually owning it

Derivatives

Futures
Options
For wards

Swaps

are all different

kinds of
derivatives

Derivatives

Futures
Options

Derivatives are a
very vast area by
For wards
themselves
Swaps

Derivatives

Futures
Options
For wards

Swaps

Understanding a little bit

about how they work, will
help us understand some of
the mechanics of trading

Derivatives

Futures
Lets spend a little
Options
bit of time on
For wards futures contracts
Swaps

Futures
A Futures contract is a contract
bet ween 2 parties

to buy/sell an asset
at a fixed future date
at an agreed price

Futures
A Futures contract is a contract
bet ween 2 parties

Vitthal will sell Swetha

to buy/sell an asset

10 tons of wheat

at a fixed future date

at an agreed price

on Jan 31, 2017

at INR 15/kg

Futures
A Futures contract is a contract
bet ween 2 parties

to buy/sell an asset

Vitthal will sell Swetha

10 tons of wheat

at a fixedThis
future
date
on
Jan
31,
2017
could be anything - stock,
at an agreed
price
bond, currency or a at
commodity
INR 15/kg

like oil, gold, wheat etc

Futures
A Futures contract is a contract
bet ween 2 parties

Vitthal will sell Swetha

Expiry
date
of
the
contract
10
tons
of
wheat
to buy/sell an asset
at a fixed future date
at an agreed price

on Jan 31, 2017

at INR 15/kg

Futures
A Futures contract is a contract
bet ween 2 parties

Vitthal will sell Swetha

Expiry
date
of
the
contract
10
tons
of
wheat
to buy/sell an asset
at a fixed future date
at an agreed price

on Jan 31, 2017

at INR 15/kg

Futures
A Futures
contract price
is a contract
The market
of the

asset
is
Vitthal
will
sell
Swetha
betcalled
ween 2 parties
the spot price
10
tons
of
wheat
to buy/sell an asset
at a fixed future date
at an agreed price

on Janprice
31, 2017
For ward

at INR 15/kg

Futures
A Futures contract is a contract
bet ween 2 parties

Vitthal will sell Swetha

to buy/sell an asset

10 tons of wheat

at a fixed future date

at an agreed price

on Jan 31, 2017

at INR 15/kg

Futures
Vitthal will sell Swetha

on Jan 31, 2017

10 tons of wheat

at INR 15/kg

In this contract
Vitthal benefits if the spot price
of wheat on Jan 31 < INR 15

Futures
Vitthal will sell Swetha 10

tons of wheat

on Jan 31, 2017 at INR 15/kg

Spot price of wheat on
Jan 31 , 2017

< INR 15/kg

Vitthal will benefit

> INR 15/kg

Swetha will benefit

Futures
Vitthal will sell Swetha 10

tons of wheat

on Jan 31, 2017 at INR 15/kg

Vitthal will benefit if wheat
price falls below INR 15

Short Position

Swetha will benefit if wheat

price rises above INR 15

Long Position

Futures
The price of the futures contract
is directly dependent on the spot
price of the underlying asset

Futures
If the spot price increases ,
futures price increases and
vice versa

Futures
Futures contracts allow traders
to bet on the value of something
without directly investing in it

Futures
For example, a futures contract on a
stock market index, allows the trader
to go long or short on the index

Futures
In addition to this, there are 4
important differences bet ween trading
futures and trading stocks directly

Futures
4 important differences
1. It is far easier to express a short view on a
stock or a commodity via futures than via the
underlying stock or commodity itself - no need to
borrow