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{{Short description|Financial contract}}
{{More citations needed|date=March 2022}}
{{Finance sidebar}}
In
Contracts are
A '''[[Stock market index future|stock future]]''' is a cash-settled futures contract on the value of a particular [[stock market index]]. Stock futures are one of the high risk trading instruments in the market. Stock market index futures are also used as indicators to determine market sentiment.<ref>{{Cite web|last=Martin|first=Ken|date=2020-11-19|title=Stock futures trade lower ahead of jobless claims, retail earnings|url=https://www.foxbusiness.com/markets/stock-futures-trade-cautiously-ahead-of-jobless-claims-retail-earnings|access-date=2020-12-02|website=FOXBusiness|language=en-US}}</ref>
The first futures contracts were negotiated for agricultural commodities, and later futures contracts were negotiated for natural resources such as oil. '''Financial futures''' were introduced in 1972, and in recent decades, [[currency future]]s, [[interest rate future]]s, [[stock market index future]]s, and [[perpetual futures]] have played an increasingly large role in the overall futures markets. Retail traders increasingly use futures contracts alongside options strategies to hedge positions, manage leverage, and scale entries in volatile markets. Even [[organ futures]] have been proposed to increase the supply of transplant organs.<ref>{{Cite journal |last=Albertsen |first=Andreas |date=December 2023 |title=Efficiency and the futures market in organs |journal=Monash Bioethics Review |volume=41 |issue=Suppl 1 |pages=66–81 |doi=10.1007/s40592-023-00180-0 |issn=1836-6716 |pmid=37688713}}</ref>
The original use of futures contracts mitigates the risk of price or exchange rate movements by allowing parties to fix prices or rates in advance for future transactions. This could be advantageous when (for example) a party expects to receive payment in foreign currency in the future and wishes to guard against an unfavorable movement of the currency in the interval before payment is received.<ref>{{Cite web |last=Hayes |first=Adam |date=2024-02-09 |title=Futures Contract Definition: Types, Mechanics, and Uses in Trading |url=https://www.investopedia.com/terms/f/futurescontract.asp |access-date=2024-04-07 |website=Investopedia |language=en}}</ref>
However, futures contracts also offer opportunities for [[speculation]] in that a trader who predicts that the price of an asset will move in a particular direction can contract to buy or sell it in the future at a price which (if the prediction is correct) will yield a profit. In particular, if the speculator is able to profit, then the underlying commodity that the speculator traded would have been saved during a time of surplus and sold during a time of need, offering the consumers of the commodity a more favorable distribution of commodity over time.<ref name=":0" />
==Origin==
The [[Dōjima Rice Exchange]], first established in 1697 in [[Osaka]], is considered by some to be the first [[futures exchange]] market, to meet the needs of [[samurai]] who—being paid in rice—needed a stable conversion to coin after a series of bad harvests.<ref>
{{Cite journal
| doi=10.1016/0378-4266(89)90028-9
|
|
|
| title=Forwards and futures in
| journal=Journal of Banking & Finance
| volume=13
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|date=September 1989
| pages=487–513
}}</ref>
The [[Chicago Board of Trade]] (CBOT) listed the first-ever standardized 'exchange traded' forward contracts in 1864, which were called futures contracts. This contract was based on [[grain]] trading, and started a trend that saw contracts created on a number of different standardized futures contracts based on [[Commodity|commodities]], as well as a number of futures exchanges set up in countries around the world.
The 1972 creation of the [[International Monetary Market]] (IMM)
==Risk mitigation==
Although futures
To mitigate the risk of default, the product is marked to market on a daily basis where the difference between the initial agreed-upon price and the actual daily futures price is
==Margin==
{{Main|Margin (finance)}}
[[File:Futures Trading Composition.jpg|right|260px|
To minimize [[counterparty risk]] to traders, trades executed on regulated [[futures
Margin requirements are waived or reduced in some cases for [[Hedge (finance)|hedgers]] who have physical ownership of the covered [[commodity]] or [[spread trader]]s who have offsetting contracts balancing the position.
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'''Customer margin''' Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. [[Futures Commission Merchants]] are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance bond margin.
'''Initial margin''' is the equity required to initiate a futures position. This is a type of performance bond. The maximum exposure is not limited to the amount of the initial margin, however, the initial margin requirement is calculated based on the maximum estimated change in contract value within a trading day.
If a position involves an exchange-traded product, the amount or percentage of the initial margin is set by the exchange concerned.
In case of loss or if the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available. Often referred to as
Some U.S. exchanges also use the term
The Initial Margin requirement is established by the Futures exchange, in contrast to other securities' Initial Margin (which is set by the Federal Reserve in the U.S. Markets).
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'''Margin-equity ratio''' is a term used by [[speculator]]s, representing the amount of their trading capital that is being held as margin at any particular time. The low margin requirements of futures results in substantial leverage of the investment. However, the exchanges require a minimum amount that varies depending on the contract and the trader. The broker may set the requirement higher, but may not set it lower. A trader, of course, can set it above that, if he does not want to be subject to margin calls.
'''Performance bond margin''' The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure the performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit.
'''Return on margin''' (ROM) is often used to judge performance because it represents the gain or loss compared to the
==Expiry and final settlement==
===Expiry===
Expiry (or "expiration" in the U.S.) is the time and the day that a particular delivery month of a futures contract stops trading, as well as the final settlement price for that contract. For many equity index futures and interest rate futures as well as for most equity (index) options, this happens on the third Friday of certain trading months. On this day the ''back month'' futures contract becomes the ''front-month'' futures contract, and the ''front-month'' futures contract becomes the ''back month'' futures contract.
On the expiry date, a [[Europe|European]] equity arbitrage trading desk in [[London]] or [[Frankfurt]] will see positions expire in as many as eight major markets every approximate half hour. Exchanges implement strict limits on how much exposure an entity may have closer to expiration as an effort to avoid any volatility around final settlement.
===Final settlement===
Final settlement is the act of [[wikt: consummating|consummating]] the contract, and can be done in one of two ways, as specified per type of futures contract:
* '''Physical delivery''' − the amount specified of the underlying asset of the contract is delivered by the seller of the contract to the exchange, and by the exchange to the buyers of the contract. Physical delivery is common with commodities and bonds. In practice, it occurs only on a minority of contracts. Most are canceled out by purchasing a covering position—that is, buying a contract to cancel out an earlier sale (covering a short), or selling a contract to liquidate an earlier purchase (covering a long). The majority of energy contracts on the [[NYMEX]] use this method of settlement upon expiration. The vast majority of contracts do not end up settling for physical delivery; holders will either close out the position by reversing their exposure, or, for some physical traders, settle via an EFP (Exchange For Physical) arrangement with a counterparty holding the opposite position. Some Treasuries contracts on the CBOT also settle via physical delivery.
* '''Cash settlement''' − a cash payment is made based on the underlying [[reference rate]], such as a short-term interest rate index such as 90 Day T-Bills, or the closing value of a [[stock market index]]. The parties settle by paying/receiving the loss/gain related to the contract in cash when the contract expires.<ref>[[Wikinvest: Cash settlement|Cash settlement on Wikinvest]]</ref> Cash settled futures are those that, as a practical matter, could not be settled by delivery of the referenced item—for example, it would be impossible to deliver an index. A futures contract might also opt to settle against an index based on trade in a related spot market. [[Intercontinental Exchange|ICE]] [[Brent Crude|Brent]] futures use this method of settlement.
Final settlement is distinct from trade [[Settlement (finance)|settlement]], which confirms that the security has been fully paid for and delivered, and [[Mark-to-market accounting|mark-to-market]] settlement, which keeps the price of the contract commensurate with the price of the underlying asset.
==Pricing==
When the deliverable asset exists in plentiful supply
===Arbitrage arguments===
Arbitrage arguments ("[[
Thus, assuming constant rates, for a simple, non-dividend paying asset, the value of the futures/forward price, ''F(t,T)'', will be found by compounding the present value ''S(t)'' at time ''t'' to maturity ''T'' by the rate of risk-free return ''r''.
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:<math>F(t,T) = S(t)e^{r(T-t)} \,</math>
This relationship may be modified for storage costs ''u'', dividend or income yields ''q'', and convenience yields ''y''. Storage costs are costs involved in storing a commodity to sell at the futures price. Investors selling the asset at the spot price to arbitrage a futures price earns the storage costs they would have paid to store the asset to sell at the futures price. Convenience yields are benefits of holding an asset for sale at the futures price beyond the cash received from the sale. Such benefits could include the ability to meet unexpected demand, or the ability to use the asset as an input in production.<ref>{{Cite journal|title=Commodity Futures Prices: Some Evidence on Forecast Power, Premiums, and the Theory of Storage|publisher=The University of Chicago Press|last1=Fama|first1=Eugene F.|last2=French|first2=Kenneth R.|journal = The Journal of Business|year = 1987|volume = 60|issue = 1|pages = 55–73|doi = 10.1086/296385|jstor = 2352947}}</ref> Investors pay or give up the convenience yield when selling at the spot price because they give up these benefits. Such a relationship can be summarized as:
:<math>F(t,T) = S(t)e^{(r+u-y)(T-t)} \,</math>
The convenience yield is not easily observable or measured, so ''y'' is often calculated, when ''r'' and ''u'' are known, as the extraneous yield paid by investors selling at spot to arbitrage the futures price.<ref>{{cite book|title=Options, Futures, and Other Derivatives|pages=122–123|publisher=Pearson|last1=Hull|first1=John C.|edition=9th|year=2015}}</ref> Dividend or income yields ''q'' are more easily observed or estimated, and can be incorporated in the same way:<ref>{{cite book|title=Options, Futures, and Other Derivatives|page=112|publisher=Pearson|last1=Hull|first1=John C.|edition=9th|year=2015}}</ref>
:<math>F(t,T) = S(t)e^{(r+u-q)(T-t)} \,</math>
In a perfect market, the relationship between futures and spot prices depends only on the above variables; in practice, there are various market imperfections (transaction costs, differential borrowing, and lending rates, restrictions on short selling) that prevent complete arbitrage. Thus, the futures price in fact varies within arbitrage boundaries around the theoretical price.
===Pricing via expectation===
When the deliverable commodity is not in plentiful supply (or when it does not yet exist) rational pricing cannot be applied, as the arbitrage mechanism is not applicable. Here the price of the futures is determined by today's [[supply and demand]] for the underlying asset in the future.
In
:<math>F(t) = E_t\left\{S(T)\right\}e^{(r)(T-t)} </math>
By contrast, in a shallow and illiquid market, or in a market in which large quantities of the deliverable asset have been deliberately withheld from market participants (an illegal action known as [[cornering the market]]), the market clearing price for the futures may still represent the balance between supply and demand but the relationship between this price and the expected future price of the asset can break down.
===Relationship between arbitrage arguments and expectation===
The expectation
===Contango, backwardation, normal and
The situation where the price of a commodity for future delivery is higher than the expected [[spot price]]
==Futures contracts and exchanges==
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* [[Money market]] – see [[Interest rate future]]
* [[Bond market]] – see [[Interest rate future]]
* [[Equity derivative#Equity futures, options and swaps|Equity market]]
* [[
* [[Cryptocurrency|Cryptocurrencies]] – see [[Perpetual futures]]
Trading on [[commodity|commodities]] began in Japan in the 18th century with the trading of rice and silk, and similarly in Holland with tulip bulbs. Trading in the US began in the mid 19th century
===Exchanges===
Contracts on financial instruments were introduced in the 1970s by the [[Chicago Mercantile Exchange]] (CME) and these instruments became hugely successful and quickly overtook commodities futures in terms of trading volume and global accessibility to the markets. This innovation led to the introduction of many new futures exchanges worldwide, such as the [[London International Financial Futures and Options Exchange|London International Financial Futures Exchange]] in 1982 (now
* [[CME Group]] (
* [[Dubai Mercantile Exchange]] (DME) – most notably [[DME Oman Crude Oil Futures Contract|Oman Crude]], Dubai Platts, and Singapore Fuel Oil.
* [[Intercontinental Exchange]] (ICE Futures Europe) * [[NYSE Euronext]]
* [[Eurex]] – part of [[Deutsche Börse]], also operates the SOFFEX | Swiss Options and Financial Futures Exchange (SOFFEX) and the [[European Energy Exchange|European Energy Exchange (EEX)]]
* [[South African Futures Exchange – SAFEX]]
* [[Sydney Futures Exchange]]
* [[Tokyo Commodity Exchange]] TOCOM
* [[Tokyo Financial Exchange]]
* [[Osaka
* [[London Metal Exchange]]
* [[Intercontinental Exchange]] (ICE Futures U.S.)
* JFX Jakarta Futures Exchange
* [[Montreal Exchange]] (MX) (owned by the [[TMX Group]]) also known in French as Bourse De Montreal: Interest Rate and Cash Derivatives: Canadian 90 Days [[Bankers' Acceptance]] Futures, Canadian [[government bond]] futures, [[S&P/TSX 60]] Index Futures, and various other Index Futures
* [[Korea Exchange]]
* [[Singapore Exchange]]
* [[ROFEX]]
* [[NCDEX]]
* [[National Stock Exchange of India]] – National Stock Exchange, India – the largest derivates exchange in terms of number of contracts<ref>{{cite web|url=https://archives.nseindia.com/global/content/media/archives/NSE_No_1.pdf |access-date=2 May 2023|website=nseindia.com|title=NSE}}</ref>
* EverMarkets Exchange (EMX) – slated for launch in late 2018 – global [[currencies]], [[equities]], [[commodities]] and [[cryptocurrencies]]
* FEX Global – Financial and Energy Exchange of Australia
* [[Dalian Commodity Exchange]] (DCE) – primarily agricultural and industrial products
* [[Shanghai Futures Exchange]] (SHFE) – primarily serves metal and foodstuff commodity markets
* [[Zhengzhou Commodity Exchange]] (ZCE) – primarily agricultural products and petrochemicals
* [[China Financial Futures Exchange]] (CFFEX) – primarily index futures and currencies
===Codes===
Most
On [[CME Group]] markets, third (month) futures contract codes are:<ref>{{cite web|url=http://www.cmegroup.com/product-codes-listing/month-codes.html |title=Month Codes |publisher=CME Group |access-date=2015-11-09}}</ref> Contracts expire after the listing month. Therefore traders must roll over their positions into the next month code.
* January = F
* February = G
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* November = X
* December = Z
Example: CLX14 is a Crude Oil (CL), November (X) 2014 (14) contract.
==Futures
Futures traders are traditionally placed in one of two groups: [[Hedge (finance)|hedgers]]
===Hedgers===
Hedgers typically include producers and [[consumer]]s of a commodity or the owner of an asset or assets subject to certain influences such as an interest rate. For example, in traditional [[commodity market]]s, [[farmer]]s often sell futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan. Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed. In modern (financial) markets, "producers" of [[interest rate swaps]] or [[equity derivative]] products will use financial futures or equity index futures to reduce or remove the risk on the [[swap (finance)|swap]].
Those that buy or sell commodity futures need to be careful. If a company buys contracts hedging against price increases, but in fact, the market price of the commodity is substantially lower at the time of delivery, they could find themselves disastrously non-competitive (for example see: [[VeraSun Energy]]).
Investment fund managers at the portfolio and the fund sponsor level can use financial asset futures to manage portfolio interest rate risk, or duration, without making cash purchases or sales using bond futures.<ref>{{Cite web|url=https://www.cfainstitute.org/-/media/documents/protected/refresher-reading/2020/pdf/swaps-forwards-futures-strategies.ashx|title=Swaps, Forwards, and Futures Strategies|last1=Valbuzzi|first1=Barbara|publisher=CFA Institute|pages=7–8|year=2019|access-date=2020-05-18}}</ref> Invest firms that receive capital calls or capital inflows in a different currency than their base currency could use currency futures to hedge the currency risk of that inflow in the future.<ref>{{Cite web|url=https://www.cfainstitute.org/-/media/documents/protected/refresher-reading/2020/pdf/swaps-forwards-futures-strategies.ashx|title=Swaps, Forwards, and Futures Strategies|last1=Valbuzzi|first1=Barbara|publisher=CFA Institute|page=17|year=2019|access-date=2020-05-18}}</ref>
===Speculators===
Speculators typically fall into three categories: position traders, [[day trader]]s, and swing traders ([[swing trading]]), though many hybrid types and unique styles exist. With many investors pouring into the futures markets in recent years controversy has risen about whether speculators are responsible for increased volatility in commodities like oil, and experts are divided on the matter.<ref>{{cite news |last1=Dreibus |first1=Tony C.|url=https://www.bloomberg.com/news/2011-06-05/commodity-bubbles-caused-by-speculators-need-intervention-un-agency-says.html |title=Commodity Bubbles Caused by Speculators Need Intervention, UN Agency Says|newspaper=Bloomberg |date= June 5, 2011 |access-date=July 2, 2011}}</ref>
An example that has both hedge and speculative notions involves a [[mutual fund]] or [[separately managed account]] whose investment objective is to track the performance of a stock index such as the S&P 500 stock index. The [[
The social utility of futures markets is considered to be mainly in the transfer of [[risk]], and increased liquidity between traders with different risk and [[time preference]]s, from a hedger to a speculator, for example.<ref name="chicagofed.org"/>
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==Options on futures==
<!-- This section is linked from [[Put option]] -->
In many cases, ''[[Option (finance)|options]]'' are traded on futures, sometimes called simply "futures options". A [[put option|put]] is the option to sell a futures contract, and a [[call option|call]] is the option to buy a futures contract. For both, the option [[strike price]] is the specified futures price at which the
Investors can either take on the role of option seller (or "writer") or the option buyer. Option sellers are generally seen as taking on more risk because they are contractually obligated to take the opposite futures position if the
Whereas futures often mature on a quarterly or monthly basis, their options expires more frequent (i.e. daily). Examples are options on futures with the underlying in gold (XAU), index (Nasdaq, S&P 500) or commodities (oil, [[VIX]]). The stock exchanges and their clearing houses provide overviews of these products (CME,<ref>{{cite web |date=2022-04-25 |title=CME Equity Index Options on Futures Bloomberg Cheat Sheet |url=https://www.cmegroup.com/education/brochures-and-handbooks/cme-equity-index-options-on-futures-bloomberg-cheat-sheet.html |access-date=2024-04-13 |website=CME Group}}</ref> COMEX, NYMEX).
==Futures contract regulations==
All futures transactions in the [[United States]] are regulated by the [[Commodity Futures Trading Commission]] (CFTC), an [[Independent agencies of the United States government|independent agency of the United States government]]. The
The CFTC publishes weekly reports containing details of the [[open interest]] of market participants for each market
==Definition of a futures contract==
* There exists in the market a quoted price ''F(t,T)'', which is known as the futures price at time t for delivery of J at time T.
* The price of entering a futures contract is equal to zero.
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* At time ''T'', the holder pays ''F(T,T)'' and is entitled to receive J. Note that ''F(T,T)'' should be the spot price of J at time T.
==Futures vis-à-vis forwards==
A closely related contract is a [[forward contract]]. A forward is like a futures in that it specifies the exchange of goods for a specified price at a specified future date. However, a forward is not traded on an exchange and thus does not have the interim partial payments due to marking to market
While futures and [[forward contract]]s are both contracts to deliver an asset on a future date at a prearranged price, they are different in two main respects:
* Futures are '''[[Futures exchange|exchange-traded]]''', while forwards are traded '''[[over-the-counter (finance)|over-the-counter]].'''
*: Thus futures are '''standardized''' and face an '''exchange
* Futures are [[#Margin|margined]], while forwards are not.
*: Thus futures have significantly less '''[[credit risk]]''', and have different funding.
Forwards have credit risk, but futures do not because a clearing house guarantees against default risk by taking both sides of the trade and marking to market their positions every night. Forwards are basically unregulated, while futures contracts are regulated at the central government level.
The [[Futures Industry Association]] (FIA) estimates that 6.97 billion futures contracts were traded in 2007, an increase of nearly 32% over the 2006 figure.
===Exchange
Futures are always traded on an [[Futures exchange|exchange]], whereas forwards always trade
* Futures are highly standardized, being exchange-traded, whereas forwards can be unique, being over-the-counter.
* In the case of physical delivery, the forward contract specifies to whom to make the delivery. The counterparty for delivery on a futures contract is chosen by the [[Clearing house (finance)|clearing house]].
===Exchange for Related Position===
A variety of trades have developed that involve an exchange of a futures contract for either a over-the-counter, physical commodity, or cash asset position that meets certain criteria such as scale and correspondence to the underlying commodity risk.<ref>{{cite web |date=2021-02-26 |title=Understanding EFRP Transactions – CME Group |url=https://www.cmegroup.com/education/articles-and-reports/understanding-efrp-transactions.html |access-date=2024-04-13 |website=CME Group}}</ref><ref>{{cite web |title=CFTC Orders INTL FCStone Financial Inc. and FCStone Merchant Services LLC to Pay Penalty for Unlawful Exchange for Related Position Transactions {{!}} CFTC |url=https://www.cftc.gov/PressRoom/PressReleases/7644-17 |access-date=2024-04-13 |website=www.cftc.gov |language=en}}</ref><ref>{{cite web | title=CFTC Orders Morgan Stanley & Co. LLC to Pay $5 Million Civil Monetary Penalty for Unlawful Noncompetitive Trades | website=CFTC | date=2012-06-05 | url=https://www.cftc.gov/PressRoom/PressReleases/6270-12 | access-date=2024-04-13}}</ref>
===Margining===
{{
Futures are [[#Margin|margined]] daily to the daily [[spot price]] of a forward with the same agreed-upon delivery price and the underlying asset (based on ''[[mark to market]]''). Forwards do not have a standard. More typical would be for the parties to agree to true up, for example, every quarter. The fact that forwards are not margined daily means that, due to movements in the price of the underlying asset, a large differential can build up between the forward's delivery price and the settlement price, and in any event, an unrealized gain (loss) can build up. Again, this differs from futures which get 'trued-up' typically daily by a comparison of the market value of the futures to the collateral securing the contract to keep it in line with the brokerage margin requirements. This true-ing up occurs by the "loss" party providing additional collateral; so if the buyer of the contract incurs a drop in value, the shortfall or variation margin would typically be shored up by the investor wiring or depositing additional cash in the brokerage account. In a forward though, the spread in exchange rates is not trued up regularly but, rather, it builds up as unrealized gain (loss) depending on which side of the trade being discussed. This means that entire unrealized gain (loss) becomes realized at the time of delivery (or as what typically occurs, the time the contract is closed prior to expiration)—assuming the parties must transact at the underlying currency's spot price to facilitate receipt/delivery. The result is that forwards have higher [[credit risk]] than futures, and that funding is charged differently.
The situation for forwards, however, where no daily true-up takes place, in turn, creates '''credit risk''' for forwards, but not so much for futures. Simply put, the risk of a forward contract is that the supplier will be unable to deliver the referenced asset, or that the buyer will be unable to pay for it on the delivery date or the date at which the opening party closes the contract. The margining of futures eliminates much of this credit risk by forcing the holders to update daily to the price of an equivalent forward purchased that day. This means that there will usually be very little additional money due on the final day to settle the futures contract: only the final day's gain or loss, not the gain or loss over the life of the contract. In addition, the daily futures-settlement failure risk is borne by an exchange, rather than an individual party, further limiting credit risk in futures.
'''Example:''' Consider a futures contract with a $100 price: Let's say that on day 50, a futures contract with a $100 delivery price (on the same underlying asset as the future) costs $88. On day 51, that futures contract costs $90. This means that the "mark-to-market" calculation would require the holder of one side of the futures to pay $2 on day 51 to track the changes of the forward price ("post $2 of margin"). This money goes, via margin accounts, to the holder of the other side of the future. That is the loss party wires cash to the other party.
A forward-holder, however, may pay nothing until settlement on the final day, potentially building up a large balance; this may be reflected in the mark by an allowance for credit risk. So, except for tiny effects of convexity bias (due to earning or paying interest on margin), futures and forwards with equal delivery prices result in the same total loss or gain, but holders of futures experience that loss/gain in daily increments which track the forward's daily price changes, while the forward's spot price converges to the settlement price. Thus, while under [[mark to market]] accounting, for both assets the gain or loss [[accrual|accrues]] over the holding period; for a futures this gain or loss is realized daily, while for a forward contract the gain or loss remains unrealized until expiry.
With an exchange-traded future, the clearing-house interposes itself on every trade. Thus there is no risk of counterparty default. The only risk is that the clearing house defaults (e.g. become bankrupt), which is considered very unlikely.{{Citation needed|date=April 2022}}
==See also==
* [[1256 Contract]]
* [[Commodity Exchange Act]]
* [[Contract for future sale]]
* [[Freight derivatives]]
* [[Fuel price risk management]]
* [[Grain Futures Act]]
* [[List of finance topics]]
* [[London Metal Exchange]]
* [[Oil-storage trade]]
* [[Onion Futures Act]]
*[[Perpetual futures]]
* [[Prediction market]]
* [[Seasonal spread trading]]
===U.S. Futures exchanges and regulators===
* [[Chicago Mercantile Exchange]], now part of [[CME Group]]
* [[Commodity Futures Trading Commission]]
* [[National Futures Association]]
* [[Kansas City Board of Trade]]
* [[New York Board of Trade]], now ICE
* [[New York Mercantile Exchange]], now part of [[CME Group]]
* [[Minneapolis Grain Exchange]]
==Notes==
{{Reflist}}
==References==
* {{Cite book |last=Arditti |first=Fred D. |year=1996 |title=Derivatives: A Comprehensive Resource for Options, Futures, Interest Rate Swaps, and Mortgage Securities |url=https://archive.org/details/derivativescompr00ardi |url-access=registration |series=Financial Management Association Survey and Synthesis Series |___location=Boston |publisher=Harvard Business School Press |isbn=0-87584-560-6 |oclc=32895048}}
* {{Cite book |last1=Lioui |first1=Abraham |author2=Poncet, Patrice |year=2005 |title=Dynamic Asset Allocation with Forwards and Futures |___location=New York |publisher=Springer |isbn=0-387-24107-8 }}
* {{Cite book |last=Redhead |first=Keith |year=1997 |title=Financial Derivatives: An Introduction to Futures, Forwards, Options and Swaps |___location=London |publisher=Prentice-Hall |isbn=0-13-241399-X }}
* {{Cite book |last=Valdez |first=Steven |year=2000 |title=An Introduction to Global Financial Markets |edition=3rd |___location=Basingstoke, Hampshire, UK |publisher=Macmillan Press |isbn=0-333-76447-1 }}
==Further reading==
* {{cite book |title=The Futures: The Rise of the Speculator and the Origins of the World's Biggest Markets |year=2010 |author=Emily Lambert |publisher=Basic Books |isbn=978-0465018437}}
==External links==
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* [http://chicagofed.org/webpages/publications/understanding_derivatives/index.cfm Understanding Derivatives: Markets and Infrastructure] Federal Reserve Bank of Chicago, Financial Markets Group
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[[Category:Derivatives (finance)]]
[[Category:Margin policy]]
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