With the growing popularity of investments, many beginners have become interested in complex financial instruments, such as futures. We tell you what you need to know about them so as not to lose your money. 

What is a futures in simple words Futures is a contract according to which the seller undertakes to deliver the underlying asset to the buyer at a specified price and within a certain period, and the latter is obliged to redeem the subject of the transaction. Imagine that you want to buy a car in six months, but anything can happen to prices, and you don't want to leave it to chance.

Then you go to a car dealer and conclude an agreement, fixing the price of the transaction and making an advance payment. In fact, this is the meaning of a futures contract - to fix the price of a product (service) and protect itself from its possible fluctuations in the future.

Let's get back to stock futures. At the heart of any contract is the underlying asset, be it a stock, oil, index or gold. And this implies two types of contracts: delivery and settlement.

A deliverable futures contract assumes that by the expiration date of the contract (expiration date), the seller will sell the underlying asset, and the buyer will buy it back. The underlying assets of a deliverable futures are stocks and bonds.

Futures and options An option is a contract according to which the buyer of an option obtains the right to buy or sell an asset at a specified time at a predetermined price. The buyer may decide not to exercise it, but the cost of the option is not refundable. The seller is obliged to exercise the option.

A futures differs from an option in that both the buyer and the seller take on the obligation to transact, whereas in an option one party has the right and the other the obligation.

Futures and forward A forward contract (forward) is an agreement according to which one party to the transaction (the seller) undertakes to sell the underlying asset (goods) to the other party within the period specified in the agreement. It would seem that the definition is similar to a futures, but there are a number of fundamental differences:

the forward is always concluded on a real asset: raw materials, currency, securities. Futures can be traded on indices or interest rates;
a forward is an over-the-counter transaction, while a futures contract can only be entered into on an exchange;
the forward is not insured against supply disruptions, while the futures are regulated through the clearing house of the exchange;
forward is a private contract between two identified counterparties.

What is clearing and variation margin Accrual/writing off of profit/loss occurs not at the moment of closing the transaction, but during clearing, which takes place twice a day.

Clearing is a technical break during which the exchange calculates the financial result of the transaction and credits or debits money from the account. The amount received or written off is called variation margin.

During clearing, a new settlement price of the futures is fixed, from which further calculation of profit / loss will be made until the next clearing.

Futures collateral Margin is a cash deposit that is blocked in your account when you open a futures trade. When you close a position, the margin amount is unfrozen.

One of the main differences between futures and stocks is that you don't have to pay for futures. When a transaction is made, a collateral is blocked in your account, which is called collateral (collateral). Usually this amount is 10-40% of the contract value.

That is, when buying a futures, only the commission for the transaction is paid and the GO is frozen. Its size can be specified on the website of the Moscow Exchange in the tool card. Below are the parameters of the futures on the RTS index with an expiration in September.

Let's say the cost of a futures contract on the RTS index is ₽100,000, and the GO is ₽20,000. It turns out that you can buy not one, but five contracts for ₽100,000. It is also worth noting that the size of the GO can change. Therefore, it is necessary to monitor the status of your position and the level of GI so that the broker does not forcefully close your position at the moment when the exchange increased the GI and you do not have enough funds to maintain the transaction.

Contango and backword puzzle Also, when working with futures, it is worth noting that its value usually differs from the price of the underlying asset. This happens because the bidders expect some events that may affect the value of the underlying asset.

Contango is a situation when the futures price is higher than the price of the underlying asset. Backwardation is the reverse situation when the futures price is lower than the price of the underlying asset. In the case of backwardation, most investors expect that the value of the underlying asset will soon fall. For example, this may be on the eve of a dividend gap, since futures do not give the right to receive payments. Therefore, it is not worth selling futures for a certain stock on the cut-off day, hoping that the value of the contract will drop sharply tomorrow. The dividend gap is already embedded in the price.

Features of futures trading The cost of all futures on the Moscow Exchange is displayed in points. In order to calculate the cost of the contract in rubles, you need to divide the cost in points by the price step and multiply by the cost of the price step. If the underlying asset of the futures is rouble, then the rouble value of the futures is equal to its value in points. For example, Sberbank stock futures are worth 30,000 points, the price step and the cost of the price step are equal to one. Then the contract value in rubles: 30,000 points / 1 × 1 = ₽30,000.

If the underlying asset is foreign currency, then you also need to take into account the impact of currency revaluation. Let's assume that Brent crude futures are worth 70 points, the price step is 0.01, and its price is 7.5. Then the contract value in rubles: 70 points / 0.01 × 7.5 = ₽52,500.

Data on the price step and its cost can be specified on the Mosbirzhi website in the instrument card.

Important! The exchange rate is fixed when calculating the variation margin twice a day before clearing — at 13:45 and 18:44 Moscow time.

There are different lots in futures. For example, one lot of futures for Gazprom shares includes 100 securities of the company, ten for Mail shares, and one for Norilsk Nickel. Information on lots can also be clarified on the Mosbirzhi website. Some brokers, for example "Tinkoff", for the convenience of customers in their application indicate these data (lot value, cost of the price point, GO).

To close a futures transaction, you need to perform an operation with a contract that has the same expiration date. For example, if you bought futures for Sberbank shares with a maturity date in September, then in order to close the deal, you must sell this particular instrument. If you sell futures with an expiration date in December, then you will have two contracts — one in long (September), and the other in short (December). Advantages and disadvantages of futures Positive

Built-in leverage due to the fact that you do not need to pay the full cost of the contract. Low commissions — usually the transaction price for one contract is 5-10 rubles. Short trading without restrictions — the broker may not allow you to open a short position on some stocks, but such restrictions do not apply to futures. The ability to hedge positions. For example, if you have shares of "Sber" and you expect them to fall, but do not want to sell them, you can open a short on futures for "Sber" shares. Then the profit from the futures transaction compensates for the losses from the drawdown of the shares.

Minuses

Futures trading brings both great returns and huge risks. If you do not use take profit and stop loss, then there is a chance of losing your deposit. It will not be possible to "sit out" the loss. If in stocks you can wait for the paper to grow and come out in a plus, then the situation is different with futures. Firstly, because the contract has a limited "lifetime", and secondly, because of the write-offs of the variation margin: you will either have to replenish the account or close the position. Futures are a complex tool that is mainly intended for professional players and experienced traders. Trading them without preparation is extremely dangerous. In our material, general information on futures was presented, but this tool has many nuances that cannot be described even by a series of articles.

Author Herman2411