Futures Market Trading Mechanics – Index, Forex and Commodities

Managing Futures Expiration Risk and Roll

Futures and Commodities Market

By: Alson Chew

By: Alson Chew
[email protected]
All Adam Khoo Updated Courses, Communities and CSM
Available. Courses From other creators also Available.
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FUTURES MARKET TRADING MECHANICS

Introduction to futures
✓ Financial contracts obligating the buyer to purchase an asset (or the seller to sell an asset), such as
a physical commodity or a financial instrument, at a predetermined future date and price.
✓ Futures are standardized contracts specifying the quality and quantity of the underlying asset.
✓ We can only trade futures contract by increment of 1. Example 1,2 ,3,4 or 5 etc
✓ Futures trading typically requires higher amount of funds of at least 5,000 USD.
✓ Futures are suitable for short term and swing trading
✓ Standardization to facilitate trading on a futures exchange e.g. CME Group, ICE, TSE and SGX.
✓ Physical or cash settlement.

In our program, we are only going to cover index, energy, precious metals and forex futures.

What is a tick or level?

A minimum price change in either direction for a particular asset.
Initial Margin level can
be found here as well

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FUTURES MARKET TRADING MECHANICS

We always look to trade the active

Number of days to expiration Contract Expiration Month
contract (highest volume month)

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FUTURES MARKET TRADING MECHANICS
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Month Month Current Active Month Contracts (As of 26th Mar 2020
Codes
/YMM20
1 January F ❖ E-Mini Dow Jones future (JUNE Delivery)

2 February G /CLK20
❖ Light Sweet Crude Oil future (May Delivery)
3 March H
/NGK20
4 April J ❖ Henry Hub Natural Gas future (May Delivery)

5 May K /GCM20
❖ Gold future (JUNE Delivery)
6 June M
/HGK20
7 July N ❖ Copper future (MAY Delivery)

8 August Q /6EM20
❖ EUR/USD future (JUNE Delivery)
9 September U
/6BM20
❖ GBP/USD future (JUNE Delivery)
10 October V
/6JM20
11 November X ❖ JPY/USD future (JUNE Delivery)

12 December Z
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FUTURES MARKET TRADING MECHANICS

Types of Futures Contracts

✓ Index Futures

1) E-Mini Dow Jones Index Future (/YM)

2) E-Mini S&P 500 Index Future (/ES)
3) E-Mini Nasdaq 100 Index Future (/NQ)
4) E-Mini Russell 2000 Index Future (/TF)

Generally, positive correlation of at least 0.85

✓ Energy Futures

1) Light Sweet Crude Oil Future (/CL)

2) Henry Hub Natural Gas Future (/NG)

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FUTURES MARKET TRADING MECHANICS

Types of Futures Contracts

✓ Metals

1) Gold Future (/GC)

2) Silver Future (/SI)
3) Copper Future (/HG)
4) Platinum Future (/PL)
5) Palladium Future (/PA)

✓ Forex Futures

1) EUR/USD Future (/6E)

2) GBP/USD Future (/6B)
3) AUD/USD Future (/6A)
4) CAD/USD Future (/6C)
5) CHF/USD Future (/6S)
6) JPY/USD Future (/6J)

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FUTURES MARKET TRADING MECHANICS

Commercial futures contract usage [email protected]

✓ Agreement today to buy or sell an asset in future

✓ Used primarily for hedging (risk management) and speculation

✓ Standardized size

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FUTURES MARKET TRADING MECHANICS

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Commercial futures contract usage

✓ SIA long futures position is HEDGED against a RISE in price of Crude Oil future
$70.00

Price of CL increased

$50.00
April 2019 Aug 2019

SIA has the right to buy the specific

quantity of Crude Oil at $50.00 even
though price is at $70.00 today. “ SIA hedgers did a
good job!

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FUTURES MARKET TRADING MECHANICS

Commercial futures contract usage

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✓ SIA long futures position is HEDGED against a FALL in price of Crude Oil future

April 2019 Aug 2019

$50.00

Price of CL decreased
$30.00

SIA is obligated to buy the specific

quantity of Crude Oil at $50.00 even
though price is at $30.00 today. “ SIA hedgers…

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FUTURES MARKET CONTRACT SPECIFICATIONS

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FUTURES MARKET CONTRACT SPECIFICATIONS

Standardized Size 6am to 5am SGT

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FUTURES MARKET CONTRACT SPECIFICATIONS

Standardized Size
6am to 5am SGT

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FUTURES MARKET CONTRACT MARGIN
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Futures Contract Margin (Estimated from Thinkorswim)
S/N Product Margin Required Per Tick Size
(in USD) (in USD)

1 E-mini Dow Jones Index Future (YM) 3,905 5

2 E-mini S&P 500 Index Future (ES) 4,620 12.5

3 Crude Oil Future (CL) 3,520 10

4 Natural Gas Future (NG) 2,420 10

5 Gold Future (GC) 5,940 10

6 Silver Future (SI) 5,775 12.5
7 EUR/USD Future (6E) 4,500 6.25
8 GBP/USD Future (6B) 4,500 5
9 JPY/USD Future (6J) 4,500 6.25
10 AUD/USD Future (6A) 1,980 10
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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: E-Mini Dow Jones Future

Product Description:
[email protected]
An electronically traded futures contract representing a portion of standard DJIA futures, E-mini Dow
futures offer an accessible alternative to manage exposure to the U.S. stock market. Based on the
Dow Jones Industrial Average, E-mini Dow futures offer exposure to the 30 U.S. blue-chip
companies represented in the stock index.

Product Type: Index

TOS Symbol: /YM

Exchange: CME

Per Tick Size: $5.00

Estimated Margin Requirements: $3,905.00

Delivery Type: Cash Settlement

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: Nikkei/USD Future
[email protected]
Product Description:
Nikkei 225 USD-denominated futures provide investors with an efficient way to access the opportunities
of the Japanese equity market and trade using U.S. dollars. Japan’s premier stock index, the Nikkei 225,
includes the top 225 blue-chip companies listed on the Tokyo Stock Exchange.

Product Type: Index

TOS Symbol: /NKD

Exchange: CME

Per Tick Size: $25.00

Estimated Margin Requirements: $5,500.00

Delivery Type: Cash Settlement

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: Light Sweet Crude Oil (WTI) Future

Product Type: Commodities (Energy)

TOS Symbol: /CL

Exchange: CME

Per Tick Size: $10.00

Estimated Margin Requirements: $3,520.00

Delivery Type: Physical Delivery

[email protected]

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: Henry Hub Natural Gas
Future

Product Type: Commodities

(Energy)

TOS Symbol: /NG

Exchange: CME

Per Tick Size: $10.00

Estimated Margin Requirements:

$2,420.00

Delivery Type: Physical Delivery

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: Gold Future

Product Type: Commodities

(Metals)

TOS Symbol: /GC

Exchange: CME

Per Tick Size: $10.00

Estimated Margin Requirements:

$5,940.00

Delivery Type: Physical Delivery

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: EUR/USD Future

Product Type: Forex

TOS Symbol: /6E

Exchange: CME

Per Tick Size: $6.25

Estimated Margin Requirements:

$4,500.00

Delivery Type: Physical Delivery

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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: GBP/USD Future

Product Type: Forex

TOS Symbol: /6B

Exchange: CME

Per Tick Size: $5.00

Estimated Margin Requirements:

$4,500.00

Delivery Type: Physical Delivery

[email protected]
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FUTURES MARKET PRODUCT ACTIVE TIMING
Product: JPY/USD Future

Product Type: Forex

TOS Symbol: /6J

Exchange: CME

Per Tick Size: $6.25

Estimated Margin Requirements:

$4,500.00

Delivery Type: Physical Delivery

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FUTURES & STOCK MARKET PRODUCT COMPARISON

FUTURES EQUITIES/STOCKS

Trades 23 hours a day. Risk 1 hour Trades only 6.5 hours a day. Risk 17.5
1
of uncertainty. hours of uncertainty.

2 Price continuous Overnight price gaps

3 ST: More frequency of trades ST: Less frequency of trades

4 No earnings Earnings announcement

PDT rule of $25,000 USD applies to

5 No PDT rule
equities trading

6 Short Selling Allowed May not have shares to short sell

7 Low Commissions Higher Commissions

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MANAGING FUTURES EXPIRATION RISK & ROLL
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The term “roll” means closing out long/short positions in the expiring contract and opening
long/short positions in the new active contact.
Current Active Contract Non- Active Far Month to turn active
*To roll short position
/CLK6 /CLM6
over to new active
June Contract

BTC: 35.99 STO: 37.22

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MANAGING FUTURES EXPIRATION RISK & ROLL
Current Position in Action in Active Contract Action in Far Contract
Active Contract

Long Sell to Close Active Contract Buy to Open Far Contract

Short Buy to Close Active Contact Sell to Open Far Contract

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Important Rule
• Always ROLL OVER your position at least 2
days before actual expiration date

http://www.cmegroup.com/tools-
information/calendars/expiration-calendar/

18th April 2016

Latest trading day to ROLL your
position to next active contract!
20th April 2016
Last Trade Day!

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Futures Market Trading Mechanics – Index, Forex and Commodities
Managing Futures Expiration Risk and Roll

Futures and Commodities Market

By: Alson Chew

By: Alson Chew
[email protected]
All Adam Khoo Updated Courses, Communities and CSM
Available. Courses From other creators also Available.
© 2021 Piranha Pte Ltd. All rights reserved.

Copyright © 2020 Adam Khoo Learning Technologies Group Pte Ltd. All Rights Reserved. 25