Futures markets

Exchange-organized trading in futures; it enables a transfer of risk between different market parties. This transfer is often derived from the need to hedge price risks of the underlying asset. Through a futures contract, the buyer secures the price at which he can later purchase the underlying asset; on the other hand, the seller secures the price at which he will later deliver the underlying asset. – Of course, futures contracts are not usually settled by physical delivery of the underlying. Rather, the difference between the agreed upon futures price and the market value of the underlying asset is settled by means of a cash payment (the actual delivery of an asset almost never takes place, with parties paying the difference between the agreed upon price and the current market price for the asset). – The profits and losses arising from the futures position are usually settled daily by an intermediary clearing house. To cover the payment obligations, the clearing house regularly demands margin requirements. – See markdown, hedge, call, cap, chooser cap, contingent swap, crack spread, Eurex, euro general collateral pooling, replacement hedge, close-out, hedge transaction, Kerviel scandal, credit derivative, credit event, term premium, model risk, put, commodity futures contract, option, speculation, commodity futures contract, worst case hedging, interest rate option, interest rate swap. – Cf. Monthly Report of the Deutsche Bundesbank of July 2006, pp. 55 ff., Monthly Report of the Deutsche Bundesbank of October 2006, pp. 31 ff. (with respect to futures, issued by the German federal government), Monthly Report of the Deutsche Bundesbank of June 2012, pp, 34 f. (oil price futures).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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