What are the basic knowledge of futures?

1. The Origin of Futures Trading
The futures market first sprouted in Europe. As early as the ancient Greek and Roman periods, there had been central trading venues, bulk barter transactions, and trading activities with the nature of futures trading. At that time, the Capitol Square in Rome and the Grand Market in Athens were such central trading places. By the 12th century, this trading method had developed on a large scale in England, France and other countries, and its degree of specialization was also high. In 1251, the British Magna Carta officially allowed foreign merchants to attend seasonal trade fairs in England. Later, in trade, there was a phenomenon of signing documents in advance for goods in transit, listing the variety, quantity, and price of the goods, paying a deposit in advance for purchase, and then signing a purchase and sale document contract. In 1571, Britain created the first centralized commodity market, the Royal Exchange in London, and the London International Financial Futures and Options Exchange was later established on its original site. Later, the first grain exchange was established in Amsterdam, the Netherlands, and the coffee exchange was opened in Antwerp, Belgium. In 1666, the Royal Exchange in London was destroyed by the Great Fire of London, but trading continued in several coffeehouses in the city of London at that time. Around the 17th century, the Netherlands invented options trading based on futures trading, and formed an options market for trading tulips at the Amsterdam Trading Center. In 1726, another commodity exchange was born in Paris, France.

(1) The Chicago Board of Trade was established in 1848
(2) The Chicago Mercantile Exchange was established in 1874
(3) Created by the London Metal stamping Exchange in 1876
(4) The French futures market was created in 1885
2. The relationship between futures trading, spot trading and forward trading
As a special trading method, futures trading has experienced a complex evolution process from spot trading to forward trading and finally to futures trading. It is a way for people to constantly pursue transaction efficiency and reduce transaction costs and risks in the trade process. result. In the modern developed market economy system, the futures market, as an important component, together with the spot market and the forward market, constitutes a multi-level organism that has its own division of labor but is closely related.
(1) Futures trading and spot trading

The direct objects of buying and selling are different. The direct object of spot trading is the commodity itself, including samples, physical objects, and pricing based on the goods. The direct object of futures trading is futures contracts, which is how many hands or futures contracts to buy or sell.
The purpose of the transaction is different. Spot trading is a transaction of first-hand money and goods. Obtaining or transferring the ownership of goods immediately or within a certain period of time is a direct means to meet the needs of buyers and sellers. The purpose of futures trading is generally not to obtain physical goods upon maturity. The purpose of the hedger is to transfer the price risk of the spot market through futures trading, and the purpose of the investor is to obtain risk profits from price fluctuations in the futures market.
Trading methods are different. Spot transactions are generally one-on-one negotiations to sign a contract, and the specific content is agreed upon by both parties. If the contract cannot be honored after signing, legal action will be taken. Futures trading is conducted in an open and fair competitive manner. Negotiating one-on-one deals, or private hedging, is illegal.
Trading venues are different. Spot transactions are generally not restricted by transaction time, location, or objects. Transactions are flexible, convenient, and highly random. You can trade with opponents at any place. Futures trading must be conducted openly and centrally within the exchange in accordance with regulations and cannot be traded over-the-counter.
Product range varies. The varieties of spot trading are all commodities that enter circulation, while the varieties of futures trading are limited. Mainly agricultural products, petroleum, metal spinning brass commodities and some primary raw materials and financial products.
The settlement methods are different. Spot transactions are settled on cash on delivery, no matter how long it takes, they are settled once or several times. Futures trading implements a daily debt-free settlement system, and profits and losses must be settled daily. The settlement price is calculated based on the weighted average of transaction prices.
(2) Futures trading and forward trading

The transaction objects are different. The objects of futures trading are standardized contracts, while the objects of forward trading are mainly physical commodities.
The functions are different. One of the main functions of futures trading is to discover prices. Contracts in forward trading lack liquidity, so they do not have the function of discovering prices.
The methods of performance are different. Futures trading has two performance methods: physical delivery and hedging and closing. The final performance method of forward trading is physical delivery.
Credit risks vary. Futures trading implements a daily debt-free settlement system, and the credit risk is very small. It takes a long time from the conclusion of the transaction to the final physical delivery of the forward transaction. During this period, the market will undergo various changes, and any behavior that is not conducive to the performance of the contract may occur. Credit The stakes are high.
The margin system is different. Futures trading has a specific margin system. Whether or how much margin to collect for forward transactions is decided privately by both parties to the transaction.
3. Basic characteristics of futures trading
The basic characteristics of futures trading can be summarized into the following aspects:

(1) Contract Standardization Futures trading is carried out by buying and selling futures contracts, and futures contracts are standardized. Standardization of futures contracts means that, except for prices, all terms of futures contracts are pre-specified by the futures exchange and are standardized. The standardization of futures contracts brings great convenience to futures trading. Both parties to the transaction do not need to negotiate the specific terms of the transaction, saving transaction time and reducing transaction disputes.
(2) Trading centralized futures trading must be conducted within a futures exchange. Futures exchanges implement a membership system, and only members can enter the market for trading. If those customers who are outside the market want to participate in futures trading, they can only entrust a futures brokerage company to act as their agent. Therefore, the futures market is a highly organized market and implements a strict management system. Futures trading is ultimately completed centrally in the futures exchange.
(3) Two-way trading and hedging mechanism Two-way trading, that is, futures traders can either buy a futures contract as the beginning of a futures transaction (called buying a position), or they can sell a futures contract as the beginning of a transaction (called selling) (Building a position), which is commonly known as “buying short and selling short”. Related to the characteristics of two-way trading is the hedging mechanism. In futures trading, most transactions do not fulfill the contract through physical delivery when the contract expires, but cancel the performance through transactions in the opposite direction of the transaction when the position is opened. responsibility. Specifically, after a long position is established, the performance obligation can be released by selling the same contract, and after a sell position is established, the performance obligation can be released by buying the same contract. The characteristics of two-way trading and hedging mechanism of futures trading have attracted a large number of futures speculators to participate in the transaction, because in the futures market, speculators have dual profit opportunities. When futures prices rise, they can make profits by buying low and selling high. When prices fall, profits can be made by selling high and buying low, and speculators can avoid the trouble of physical delivery through the hedging mechanism. The participation of speculators has greatly increased the liquidity of the futures market.
(4) Leverage mechanism Futures trading implements a margin system, which means that traders need to pay a small amount of margin when conducting futures transactions, generally 5%-10% of the value of the contract, which can complete several times or even dozens of times. Contract trading, this feature of futures trading attracts a large number of speculators to participate in futures trading. Futures trading has the characteristic that a large amount of investment can be made with a small amount of funds, which is vividly called the “leverage mechanism”. The leverage mechanism of futures trading makes futures trading characterized by high returns and high risks.
(5) Daily debt-free settlement system: Futures trading implements a daily debt-free settlement system, that is, after the end of each trading day, the profit and loss status of traders on that day is settled, and funds are transferred between different traders based on the profit and loss. If the trader suffers serious losses and the margin account is insufficient, the trader will be required to add margin before the market opens on the next day to achieve “daily debt-free”. The futures market is a high-risk market. In order to effectively prevent risks, the risks to traders caused by adverse changes in futures prices should be controlled within a limited range, thereby ensuring the normal operation of the futures market.
4. Futures Market and Securities Market
The futures market is a market for buying and selling futures contracts, and futures contracts are essentially symbols of future commodities. Therefore, the futures market is intrinsically linked to the commodity market. However, in terms of converting the buying and selling of physical commodities into the buying and selling of contracts, futures contracts are externally represented as securities of related commodities, which is similar to the securities market. The stocks and bonds circulating in the securities market can be said to be standardized contracts of ownership of joint-stock companies and standardized contracts of claims and debts of bond issuers. The stocks, bonds, and futures contracts that people buy and sell are all investment certificates. However, there are the following important differences between the futures market and the securities market.

(1) Different basic economic functions: The basic functions of the securities market are resource allocation and risk pricing; the basic functions of the futures market are risk avoidance and price discovery.
(2) Different trading purposes The purpose of securities trading is to obtain interest, dividends and other income and capital gains. The purpose of futures trading is to avoid spot market price risks or obtain speculative profits.
(3) Different market structures The securities market is divided into the primary market (issuance market) and the secondary market (circulation market); the futures market does not distinguish between the primary market and the secondary market.
(4) Margin regulations: Different regimes generally use spot trading, and full funds must be paid; futures transactions only require a certain percentage of the futures contract value as a margin.