Future's Terminology

Question 1

What is an Omnibus Account

Answer 1

When an FCM’s customer acct gets cleared through a different FCM

Question 2

First Day Notice

Answer 2

First day a short can issue a delivery notice

Question 3

Futures in General

Answer 3

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

Question 4

Stocks in General

Answer 4

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

Question 5

Futures vs Forward

Answer 5

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

Question 6

Why Futures Market?

Answer 6

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

Question 7

Fungibility

Answer 7

The characteristics of Interchangeability

Question 8

What’s the only thing negotiated in a futures contract?

Answer 8

Price and Quantity

Question 9

What’s a futures contract

Answer 9

Standard In the following:

Contract Terms
Delivery Grade
Delivery Points
Delivery Months (options)
Cash settle vs physical delivery

Question 10

Offset

Answer 10

When a futures contract is terminated by a transaction that is equal and opposite from the one that initiated the position

Question 11

Key Features of Futures Contracts

Answer 11

Buyers receive delivery
Sellers make delivery
Liquidation through offset or delivery
Can be traded on more than 1 exchange