Chapter 22 – Futures Markets
22-1
CHAPTER TWENTY-TWO
FUTURES MARKETS
CHAPTER OVERVIEW
This chapter describes the futures markets, trading mechanics involved with futures trading, strategies and
LEARNING OBJECTIVES
PRESENTATION OF MATERIAL
22.1 The Futures Contract
Chapter 22 opens with a presentation of the basic elements of futures and forwards. Futures contracts are
more standardized than are forwards. The clearinghouse on futures contracts warrants discussion.
22.2 Trading Mechanics
Basic trading arrangements are presented in Figure 22.3. Trades can be closed out by taking or making
delivery or by reversing the trade. Most trades are closed out by reversing the trade and not by taking or
22.3 Futures Markets Strategies
Chapter 22 – Futures Markets
22.4 Futures Prices
Pricing on futures contracts is described using the spot-futures parity theorem. The theorem is based on
the concept that there are two ways to acquire an asset for use in the future. First, the asset could be
purchased at the spot price today and stored until it is needed. Second, a long position in futures could be
22.5 Futures Prices vs. Expected Spot Prices
The last major concept that is covered in the chapter is the relationship between the observed futures price
and the spot price that is expected to prevail when the contract expires. The two values would be the
Excel Application
The parity spreadsheet allows you to calculate futures prices corresponding to a spot price. The