A contract for assets bought at an agreed price but delivered & paid at a later date.
LONG POSITION: The purchaser of a futures contract is said to have gone long or taken a long position.
SHORT POSITION: The seller of a futures contract is said to have gone short or taken a short position
The spot price is the price for immediate delivery.
The futures price is the price today for delivery at some future point in time.
At expiration, the spot price must equal the futures price.
Margin is cash or highly liquid collateral placed in an account to ensure that any trading losses will be met. MTM is daily procedure of adjusting the margin account balance for daily moments in the future price. Look for margin requirements illustrations in main book.
Clearing house guarantees that traders in the futures market will honour their obligations by acting as the counter party to the traders. It acts as a buyer to every seller & seller to every buyer.
OTC Market is subject to great deal of credit risk and hence requires collateralization. Some OTC transaction uses clearing houses. Arguments for the use of clearing houses in OTC market includes:
Settlement price is the average of the price of the trade during the last period of trading.
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