Term
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Definition
| Open interest is the total number of long positions in a given futures contract. It's also equal to the number of short positions in a given futures contract. |
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Term
| What are the characteristics specified in a futures contract? |
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Definition
- Quality of the underlying asset
- Contract size
- Delivery location
- Delivery time
- Price quotation and tick size
- Daily price limits
- Position limits (limit on the max number of contracts a speculator may hold in order to prevent speculation from having an undue infuence on the market. such limits do not apply to hedgers). |
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Term
| w.r.t futures, what is the basis? |
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Definition
basis = spot price - futures price
arbitrage forces spot and futures to be the same price at maturity. |
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Term
| Describe the role of collateralization in the OTC market? |
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Definition
| collateralization is a means of reducing credit risk in the OTC market. It's basically a marked to market feature for the OTC market where any loss is settled in cash at the end of the trading day. |
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Term
| What are the 4 ways to terminate a futures contract? |
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Definition
- A short can terminate the contract by delivering the goods, a long by accepting the goods and paying the contract price to the short.
- In a cash-settlement contract delivery is not an optino. Futures account is marked to market based on the settlement price on the last day of trading.
- Make a reverse of offsetting trade in the futures market.
- settle through exchange for physicals (with a trader with opposite position to your own). |
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