A futures contract is a standardized contract between the parties obligating them to buy or sell a predetermined quantity of a specified underlying asset of predetermined features at a predetermined price in a certain expiry date.
Futures contracts have four basic elements namely; quality, price, quantity and expiry date. These basic specifications are standardized for futures contracts traded at organized exchanges.
An initial margin must be deposited with the Clearing House in order to trade futures contracts on exchanges. In the event that the collateral falls below the initial margin level (maintenance margin) due to the losses incurred or depreciation of non-cash collaterals, a margin call will be made to the relevant investors.
Settlement of futures contracts is realized by physical delivery or cash settlement on expiry date. In the case of physical delivery, the underlying asset will be exchanged on registry basis, whereas in the case of cash settlement, the amount equal to the difference between the contracted price and the price as of the expiry date will be exchanged by the parties.
Who trades Futures?
Investors who hold positions or expect future delivery in capital market instrument, foreign currency, precious metal or commodity, but also want to be protected from unexpected changes in the price of the relevant product in the future take positions in the futures markets opposite to their positions in the cash market.
Speculators are individuals or institutions that invest in order to earn profits within the framework of price expectations, unlike those who trade for hedging purposes. Futures markets offer important opportunities to speculators, especially due to the leverage effect. Speculators are known to increase the liquidity and trading volume of the market. The willingness of this type of investors to take risk provides the other investors transfer the risk they carry to the speculators.
Arbitrageurs are individuals or institutions that aim to make risk-free profits through simultaneous trading in two or more markets. For example, if a commodity is traded at two different prices in geographically different places, the arbitrageur immediately buys it from the cheaper place and sells it where it is expensive, thereby making a risk-free profit. Similarly, in the event of a price different from the required price due to the cost of carry between spot markets and futures markets, arbitrageurs step in and balance the markets by buying in the cheaper market and selling in the expensive market. The presence of arbitrageurs contributes to the harmonious and balanced movement of the markets and the correct price formation.
Currently, Single Stock, Index, FX, Interest Rate, Precious Metals, Foreign Index and Energy Futures are traded on VIOP.