Futures Derivative

What is a futures contract?

• A futures contract is a type of cryptocurrency wallet.

• A futures contract is a type of insurance policy for stock market investments.

• A futures contract is a legal agreement to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

• A futures contract is a type of retirement savings account.

Explain the concept of margin in futures trading.

• Margin in futures trading is the total value of the contract

• Margin in futures trading is the interest rate charged by brokers

• Margin in futures trading is the profit made from a trade

• Margin in futures trading is the initial deposit of collateral required to enter into a position.

What are the key differences between futures and forward contracts?

• Futures and forward contracts have the same settlement process and margin requirements.

• Futures are standardized contracts traded on exchanges with daily settlement and margin requirements, while forward contracts are customized agreements traded over-the-counter settling at maturity.

• Futures are customized agreements traded over-the-counter settling at maturity, while forward contracts are standardized contracts traded on exchanges with daily settlement and margin requirements.

• Futures and forward contracts are both traded over-the-counter.

How are futures contracts standardized?

• By varying the tick size based on market conditions

• By specifying the underlying asset, contract size, expiration date, and tick size.

• By having no expiration date

• By allowing customization of contract terms by individual traders

Discuss the role of clearinghouses in futures trading.

• Clearinghouses facilitate the clearing and settlement of futures contracts, manage counterparty risk, and ensure the smooth functioning of the market.

• Clearinghouses do not ensure market stability

• Clearinghouses are responsible for setting futures prices

• Clearinghouses are not involved in risk management

What is the significance of marking to market in futures trading?

• Marking to market is only relevant for long-term investments, not futures trading.

• Marking to market is significant in futures trading as it helps in minimizing counterparty risk and ensures traders have enough margin to cover potential losses.

• Marking to market helps in predicting future market trends accurately.

• Marking to market is a strategy used to maximize profits in futures trading.

Explain the concept of basis risk in futures trading.

• Basis risk is the risk of interest rate fluctuations in futures contracts

• Basis risk in futures trading is the risk that the price of the underlying asset being hedged does not move in perfect correlation with the price of the futures contract.

• Basis risk is the risk of default by the futures exchange

• Basis risk is the risk of market manipulation in futures trading

What are the factors that influence the price of futures contracts?

• Multiple factors such as supply and demand dynamics, interest rates, geopolitical events, economic indicators, market sentiment, and underlying asset price movements influence the price of futures contracts.

• Social media trends

• Celebrity gossip

• Weather patterns

Discuss the concept of open interest in futures trading.

• Open interest is the total number of outstanding contracts that have not been settled by an offsetting transaction.

• Open interest refers to the total number of shares traded in a day

• Open interest only includes settled contracts in futures trading

• Open interest is the same as volume in futures trading

How do speculators and hedgers differ in the futures market?

• Speculators and hedgers both aim to profit from price changes in the futures market.

• Hedgers aim to profit from price changes, while speculators use futures contracts to mitigate risk.

• Speculators and hedgers have the same goals in the futures market.

• Speculators aim to profit from price changes, while hedgers use futures contracts to mitigate risk.