Financial futures are simply futures contracts based on four key financial instruments: currencies, bonds, short-term interest rates and stock indices. Each of these has to be approached from a unique perspective. To be a successful futures trader, learning the characteristics of each individual asset is important.
An example of a financial futures contract relating to bonds would be something like a 10 Year US T-Notes Composite ZN. These particular contracts trade on the Chicago Board of Trade via GLOBEX with each US Treasury note having a value of $100,000 and, crucially, there is no limit in how far the value of each contract can move in any single day of trading. These bonds contracts are affected purely by supply and demand, with factors like a rising US Stock Market meaning either a decrease in demand, before they stop trading and are settled in cash on the seventh business day before the last business day of the final month.
Currencies contracts, like Euro FX, are traded on the Chicago Mercantile Exchange and are worth €125,000 each, but are quoted in US dollars. Like bonds, Euro FX contracts have no set limit on far they can move in a single trading day, but they move in small $0.0001 increments and are affected again by supply and demand. A fall in US interest rates would spark an increase in demand for Euro FX contracts, however, the opposite is true of European interest rates; a rise in them would usually come before an increase in demand for the contracts.
An example of a Short-term Interest Rates futures contract would be a 3 Month Euro Dollar GE contract, which represent $1, 000,000 each and work in increments of $0.005 with no upward limit of how much they can increase in a day. LIBOR rates affect the value of Short-term Interest Rate contracts, with a falling LIBOR rate (London Interbank Offered Rate) signifying a decrease in demand for the contract.
Finally, an E-Mini S&P 500 EM is an example of a Stock Indices contract which are again affected by fluctuations in supply and demand, but this time by both US interest rates and also US corporate profits. There are many other examples of financials futures trading in relation to particular sectors and investment instruments, but these are some of the unique characteristics to consider should you wish to learn more about the opportunities of futures trading.
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About the Author:
Janine Barclay writes for a digital marketing agency. This article has been commissioned by a client of said agency. This article is not designed to promote, but should be considered professional content.
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