Futures

Question 1

A futures contract is a legal agreement to buy or sell a standardized asset on a specific date or during a specific month that is facilitated through a futures exchange.

Answer 1

https://www.cmegroup.com/education/courses/introduction-to-futures/definition-of-a-futures-contract.html

Question 2

Every futures contract has an underlying asset, the quantity of the asset, delivery location, and delivery date.

Answer 2

https://www.cmegroup.com/education/courses/introduction-to-futures/learn-about-contract-specifications.html

Question 3

Prior to the expiration date, traders have which of the following options?

A trader can close out a contract

A trader can extend his/her open positions without hold the trade to expiration

A trader can choose to hold a contract and go to settlement

Answer 3

https://www.cmegroup.com/education/courses/introduction-to-futures/get-to-know-futures-expiration-and-settlement.html

Question 4

All futures contracts have a minimum price fluctuation also known as a tick. Tick sizes are set by the exchange and vary by contract instrument.

Answer 4

https://www.cmegroup.com/education/courses/introduction-to-futures/tick-movements-understanding-how-they-work.html

Question 5

the tick size of an E-Mini S&P 500 Futures Contract is equal to one quarter of an index point. Since an index point is valued at $50 for the E-Mini S&P 500, a movement of one tick would be

.25 x $50 = $12.50

Answer 5

https://www.cmegroup.com/education/courses/introduction-to-futures/tick-movements-understanding-how-they-work.html

Question 6

Price limits are the maximum price range permitted for a futures contract in each trading session.

Equity Indexes futures have a three level expansion: 7%, 13% and 20% to the downside, and a 7% limit up and down in overnight trading.

When price reaches any of those levels the market will go limit up or limit down.

Answer 6

https://www.cmegroup.com/education/courses/introduction-to-futures/price-limits-price-banding.html

Question 7

Contract notional value, also known as contract value, is the financial expression of the contract unit and the current futures contract price.

Now assume E-mini S&P 500 futures are trading at 2120.00. The multiplier for this contract is $50.

$50 x 2120.00 = $106,000

How might notional value be calculated?

Multiplying the contract unit by the value of the contract price

Answer 7

https://www.cmegroup.com/education/courses/introduction-to-futures/about-contract-notional-value.html

Question 8

One of the defining features of the futures markets is daily mark-to-market (MTM) prices on all contracts. The final daily settlement price for futures is the same for everyone.

Which of the following are attributes of mark-to-market?

It’s established by the exchange

Everybody sees the same settlement price

Defines the daily profit and loss for open positions

All of the above

Answer 8

https://www.cmegroup.com/education/courses/introduction-to-futures/mark-to-market.html

Question 9

Securities margin is the money you borrow as a partial down payment, up to 50% of the purchase price, to buy and own a stock, bond, or ETF. This practice is often referred to as buying on margin.

Futures margin is the amount of money that you must deposit and keep on hand with your broker when you open a futures position. It is not a down payment and you do not own the underlying commodity.

Futures margin generally represents a smaller percentage of the notional value of the contract, typically 3-12% per futures contract as opposed to up to 50% of the face value of securities purchased on margin.

Answer 9

https://www.cmegroup.com/education/courses/introduction-to-futures/margin-know-what-is-needed.html