What are futures? Tim Bennett explains the key features and basic principles of futures, which, alongside swaps, options and covered warrants, make up the derivatives market.
- What are derivatives? https://www.youtube.com/watch?v=Wjlw7ZpZVK4
- What are options and covered warrants? https://www.youtube.com/watch?v=3196NpHDyec
- What are futures? https://www.youtube.com/watch?v=nwR5b6E0Xo4
- What is a swap? https://www.youtube.com/watch?v=uVq384nqWqg
- Why you should avoid structured products https://www.youtube.com/watch?v=Umx5ShOz2oU
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Hi Tim, Your channel is simply brilliant. I have learned a lot from these, thanks a ton. Please keep it up.
I have a question which is haunting me for days. As you have mentioned the Futures price in a particular contract is fixed for the duration of the contract. Also these is a statement, that the futures price converges to the spot price as the delivery date approaches. These two statements are contradictory to me as far as the futures price is concerned. Can you please elaborate this and help me understand what I am missing here.
CORRECTION; Please tell me something I am a little confused about.. 0 = where the futures market is. I sell an Calls Option at 4 for $500.Two weeks later the market is at 3 ( the Buy options value is $700)...if the Buyer decide to get out of his Calls position before market reaches 4... what will I lose? and what will I gain?
Please tell me something I am a little confused about.. 0 = where the futures market is. I sell an Option at 4 for $500.Two weeks later the market is at 3 ( the Buy options value is $700)...if the Buyer decide to get out of his Calls position before market reaches 4... what will I lose? and what will I gain?
If the seller had to pick up a ton for 3000$ and sell it for 2500$, hes - 500$, but then you say he buys back.the contract for 3000$, which means that he would be down another 500$, so all together it would be 1000$ he is down, not 500$.
The guy doing the video is charming. But why would you use a product that nobody can relate to in your example. It just adds a layer of complication to a subject we already do not understand. And if the producer is going to walk away $500 down why would he then buy the $3000 contract when he could just sell contract 1 and be $500 down. And what about the Market Maker? The ABC example would have been a perfect time to introduce the concept of the Market Maker. Does C not represent the Market Maker?
One question though.
If Trader A is the one who writes the contract to sell, then isn't he the loser anyway? Cuz
1) if prices rise, he is losing out on the price rise and has to sell at the strike price.
2) if the prices fall, Trader B is gonna buy from someone else rather buy at a higher strike price from Trader A.
Or is there any other angle?
Isn't the main difference between forwards and futures the fact that forwards are over the counter contracts while you need a clearing society to exchange futures? Therefore does trading future involve extra price to pay the clearing society?
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Great instructional! I was going to add a similar "mechanics of futures" lesson to my futures trading tutorial videos, but I think I'm going to opt to set a link back to this page. No need for me to spend time attempting to do what Mr. Bennett has already done impeccably!
Does A pay B $10 for the contract the day they enter into the contract? Just wondering when money actually changes hands. I understand he agreed to pay $10 and sells day two realizing a profit of $2. But if A didnt pay $10 on day one, how did he make a $2 profit if he didnt pay anything? Is he still obligated to buy at $10 at the set date even though he closed his position?
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