Introduction to Futures Contract

Examples of how producers and consumers use futures to hedge against price fluctuations.

Discussion on how traders use futures to speculate on price movements.

Explanation of arbitrage opportunities involving futures contracts.

The Beginnings of Futures Trading

Development of Futures Trading in Europe and Formal Exchanges

Technological Advancements and Electronic Trading

Globalization and the Expansion of Futures Markets

• What is a futures exchange?
• Primary functions: providing a trading venue, standardizing contracts, and managing counterparty risk.

• Chicago Mercantile Exchange (CME)
• Intercontinental Exchange (ICE)
• Other global exchanges: Eurex, Shanghai Futures Exchange, etc.

• Clearing and settlement
• Market surveillance and regulation
• Technology and data services

• Explanation of the trading process on an exchange.
• Role of electronic trading platforms and their impact on market accessibility.

• verview of regulations that govern market participants and exchanges.
• Role of organizations like the Commodity Futures Trading Commission (CFTC) in the U.S.

• Definition of commodity futures.
• Role in price stabilization and risk management.

• Common contracts: corn, wheat, soybeans, and cattle.
• Seasonal and geopolitical factors affecting prices.

• Focus on crude oil, natural gas, and heating oil.
• Influence of global political and economic events on energy prices.

• Types: gold, silver, copper.
• Uses in hedging against inflation and currency devaluation.

• Definition and purpose of financial futures.
• Role in hedging financial risks and speculating.

• Examples: futures on the euro, Japanese yen, and British pound.
• Factors influencing currency futures: monetary policy, economic data.

• Major contracts: S&P 500, Dow Jones Industrial, NASDAQ.
• Utilization by portfolio managers to hedge against market volatility.

• Contracts like U.S. Treasury bonds, Eurodollar.
• Importance for managing interest rate risk.

• Discussion on how liquidity and volatility vary across different types of futures contracts.

• Key pricing inputs: underlying asset prices, time to expiration, interest rates, and volatility.

• How different market participants use various types of futures contracts for hedging, speculation, and arbitrage.

• Introduction to the basic principles of futures pricing.
• Explanation of the futures price as the expected future spot price, adjusted for cost of carry (storage costs, interest rates, etc.).

• Detailed discussion on the cost of carry and its components.
• Examples of how cost of carry affects commodity and financial futures differently.

Basic economic principles affecting futures, including seasonal variations, production changes, and consumer demand shifts.

Impact of GDP growth rates, employment data, inflation rates, and other economic indicators on futures markets.

How events such as wars, elections, and trade agreements can alter market expectations and futures pricing.

• The role of trader psychology and market sentiment in futures pricing.
• Introduction to the concept of market overreaction and corrections.

Introduction to models like the Black model for commodity futures and the Black-Scholes model for options on futures.

Overview of quantitative tools used to analyze futures prices, including technical indicators and statistical models.

Using current market data, students will apply theoretical models to predict future price movements.

Review of historical pricing anomalies and market reactions.

Students will analyze current futures market data and make predictions based on their understanding of pricing mechanisms.

• Definition and mechanics: Buying a futures contract with the expectation that the underlying asset's price will rise.
• Potential profits and risks.
• Examples in different markets (commodities, financial futures).

• Definition and mechanics: Selling a futures contract with the expectation that the underlying asset's price will fall.
• Hedging against downside risks.
• Examples and potential outcomes.

• Explanation of hedging as a risk management strategy.
• How hedging protects against price volatility and locks in prices for future transactions.

• Direct hedging: Matching futures contracts with the exposure of the underlying asset.
• Cross-hedging: Using futures contracts of a different but related asset when a direct hedge is not available.

• Case studies of agricultural producers hedging crop prices.
• Corporate examples of hedging fuel prices and currency risks.