Futures Market Terms Explained: The Basics of Futures Trading (1)
2 min read · · Korean original
Contents 9
Hello, this is Bitpunk. Today we'll go over the terms used in the futures market. Unlike the stock market, the futures market has its own special vocabulary. Basic terms like contract, tick, margin call, and position are things every investor who uses the futures market should know. Here's a roundup of the basic futures market terms.
Contract
Just as the stock market counts trading quantity in units of 1 share, 2 shares, the futures market counts each unit as 1 contract, 2 contracts.
Tick
In the futures market, a tick is the minimum price movement of a product. For crude oil futures it is USD 0.01 (1 tick), while for the euro it is 0.0001.
Position
A position is an open (unsettled) buy or sell contract. A buy position is called long, and a sell position is called short. Having no position at all is called a square position.
Margin
To trade futures, you need a kind of deposit for the trade. Each exchange sets and announces this rate based on how much the product's price moves up and down.
Margin Call
If losses from the daily settlement are large enough that your deposited funds fall below the required margin, you have to deposit additional funds. Usually you must add the funds by a specific time the next day, and if you don't, your position is liquidated at the broker's discretion.
Delivery Month
The delivery month is the month in which a futures contract expires and either the physical goods are delivered or a cash settlement takes place. This can happen every month or quarterly (March, June, September, December).
Delivery Date / Expiration Date
The delivery date is the day within the delivery month when the futures product is actually delivered or the cash is settled. In today's futures markets, rather than actually exchanging physical goods, settlement is often done in cash based on the settlement price.
Open Interest
Open interest refers to contracts that have been entered into but not yet closed. These outstanding futures contracts are useful for reading the market.
Contango & Backwardation
Contango refers to a situation where the futures price is higher than the spot price, while backwardation refers to a situation where the futures price is lower than the spot price.
