Future's Terminology Flashcards
What is an Omnibus Account
When an FCM’s customer acct gets cleared through a different FCM
First Day Notice
First day a short can issue a delivery notice
Futures in General
On Exchange; purpose: hedging or risk shifting; No transfer of ownership; Short term; Profits by changes in prices; needs constant monitoring by customer; Regualted by CFTC and NFA
Stocks in General
On Exchanges or OTC; Purpose: capital formation, appreciation and income; transfer of ownership at execution; long term; profits by appreciation and dividends; need active monitoring; SEC and FINRA
Futures vs Forward
Futures: Exchange traded, standardized terms cleared, hedging, margins are guarantee, market 2 market
Forwards: Private (not exchange), negotiated terms, not cleared, commercial contract, collateral as guarantee, not market 2 market
Why Futures Market?
To shift risk
Hedgers have risks they don’t want
Speculators are willing to accept those risks for an opportunity to profit
Fungibility enables risk transfer
Relationship between cash and futures prices
Fungibility
The characteristics of Interchangeability
What’s the only thing negotiated in a futures contract?
Price and Quantity
What’s a futures contract
Standard In the following:
Contract Terms Delivery Grade Delivery Points Delivery Months (options) Cash settle vs physical delivery
Offset
When a futures contract is terminated by a transaction that is equal and opposite from the one that initiated the position
Key Features of Futures Contracts
Buyers receive delivery
Sellers make delivery
Liquidation through offset or delivery
Can be traded on more than 1 exchange