2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
Newcomers to trading enter a new, unknown world with its own rules and laws. A huge amount of incomprehensible information, terms, models will make even scientists confused. Any strategy in the market is to anticipate future or frequently recurring events and capitalize on it. Today we will talk about what futures expiration is and how you can increase your investments on it. The article will be useful not only for beginners, but also for experienced traders, regardless of the site where you trade, because the mechanism is the same everywhere.
Definition, terminology and timing
The word "expiration" is derived from the English expiration - the completion of a certain period / term. When applied to the exchange, it means the end of trading in a certain contract. Futures expiration is divided into two types: settlement and staged. When used, a specific date is selected, onwhich all participants will need to fulfill their obligations. You can see it in the specification of any contract. For example, the expiration of futures on Mos. exchange on the most popular instrument RTS comes every quarter.
How expiration can affect trading
When the expiration date of the contract comes, price movements begin to make sharp jumps in the direction of both sellers and buyers. This is due to the fact that during this period there is a strong struggle between them. Several factors exert particular pressure on the price in such a period: the volume and ratio between shares and the market for production instruments, the distribution of instruments among all participants, and the influence of market makers. As a result of this data, high volume, volatility is forming in the market, and whoever remains the winner will indicate the further direction of movement.
Why should a beginner know what futures expiration is?
For example, take the popular RTS index. His contract changes 4 times a year, i.e. quarterly. The calendar year starts with the March futures as its expiration date falls at the end of March. Each month and year are marked in the terminals based on 3 data. First comes the designation RI (for RTS), then the indication of the month (H - March, M - June, U - September, Z - December) and ends with the number 7 (the last digit of the year 2017). As a result, one futures name (RIH7) already carries the basic information. It should be noted that at any given moment there are severalinstruments, as the expiration of futures is six months, but the active phase begins three months before the expiration date.
Surely you have a question: what happens to the contract after its termination? The exchange simply closes it at the current market price and withdraws the profit or loss to the trader's account. Therefore, even if you yourself have not closed your contract, there is nothing wrong with that, but it is still better to switch to a new contract yourself in advance. You can do it yourself in the terminal settings.
Brent oil futures
Due to the great popularity of oil trading, we want to tell you about how the expiration of brent futures takes place, what it is and how you can make money on it. When trading this instrument, you must first of all take into account the factors that affect its value in the near future. These include: inflation rates, the state of the fuel base for 5-10 years, the possible impact of new technologies and, of course, geopolitics. It should be noted that trading in oil futures differs from trading in instruments on the commodity exchange in the following ways:
1) no need to think about how to transport and where to store;
2) before the expiration time the contract will be resold;
3) you can only earn or lose on the price difference.
If you still decide to trade this instrument, then you need to study in more detail all its elements and factors of influence on it.
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