Under -term market: Definition and operation - Capital.fr

What is the term market?

There are 2 main types of markets:

The first term market was inaugurated in 1848.This is the Cbot (Chicago Board of Trade).Initially, the term contract markets were created to allow producers of agricultural materials, then manufacturers and users of goods, to cover themselves (HEDGING) against price fluctuations.Thus, a wheat producer can sell in advance his harvest at a price agreed in advance without being impacted by a possible drop in courses.With this system, it transfers the risk of course to another investor.Symmetrically, he buys this harvest hoping that the price of wheat exceeds the price at which he acquired it in order to achieve added value.

An investor can also carry out an operation of an equivalent amount and contrary in a cash market and in a term market in order to mining the potential financial loss due to a change of course.Under -term contracts are also used for speculative purposes, stakeholders positioning themselves with the hope of taking advantage of a market movement.

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What is the interest of the long -term market?

Several virtues are generally lending to the term markets.The courses freely determined by investors provide a realistic value that will apply tomorrow according to the rules of supply and demand.These markets make it possible to obtain one of the goods with standardized quality since investors do not see the prizes they acquire.This market promotes the liquidity and execution of large orders with a risk of limited course fluctuation.The availability of capital used to finance the maintenance of level stocks depends on the coverage of these stocks.Thus, financial institutions generally emit borrowings of a higher amount when the stocks of a producer are covered because they minimize the risk of loss.

How do the markets work on?

On this delayed delivery market, investors buy financial products which are backed by an underlying: it can be a raw material, an action, an interest rate, a index indexclimate, of a stock market index on the CAC 40, etc..In all cases, the principle is the same: buy or sell this underlying active at a future date, but at a price agreed in advance.

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This commitment is formalized by a contract which can be sold provided that this transfer occurs before its last day of commerce (more than 90 % of contracts change their hands before their due date).

There are 2 main categories of contracts: future contracts and Forwards contracts.

Future contracts

These contracts are standardized and exchanged on organized, regulated stock markets, and equipped with a compensation chamber.The latter is responsible for ensuring the monitoring and safety of positions and replacing the faulty counterpart in the event of a defect.In return, it collects a security deposit, the amount of which is re -evaluated periodically according to the evolution of the courses.

Futures specify in particular the quality and quantity of the underlying assets.When the due date arrives, the contract expires and both parties must fulfill their sales or purchase obligations.

Forwards contracts

Unlike future, Forwards contracts are not standardized.They can therefore be subject to a specificity fixed on a case -by -case basis.Concluded directly between the parties, these contracts (over the counter) without intermediaries are more risky since they do not benefit from the security that a organized market brings.By the fact, they are also less easily negotiable than future (standardized).

Note: in these markets, it is possible to take a position for sale before having bought, since the delivery is deferred.Investors providing for an increase in courses will buy contracts in the long term while those providing for a reverse development will sell them.

How to access the term market?

Given its specificities, the term market is accessible to individuals through future.These contracts give access to a significant lever effect, with a fairly low warranty deposit (more or less 10 % of the value of the contract).The costs are negotiable.

Some intermediaries give access to Forwards contracts.It is then the broker that plays the role of compensation chamber.

Whether it is a future or a Forward, the term contracts are risky investments, reserved for experienced investors: the lever effect can play upwards and the contract firmly hirescounterparties.

As for investing in this market, future has better guarantees of negotiability, as they exchange on an organized market.