Investments and speculation on the stock exchange: how to trade in dollar futures

Good day to all!

In this article I want to share my knowledge on the topic “Investments and speculation in the stock market”, in particular, we will talk about derivatives. Do not be intimidated by this terrible word, since after reading this article you will understand no worse than any professional trader. Please note that to understand, this does not mean making money. The article is purely informative, and we will consider the example of a dollar futures, since recently I have seen an increased interest in this topic among people who are not connected with this business.

So, for starters, you should have an understanding of the main sections of our Moscow Exchange (data as of February 6, 2015):
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You can follow this data online on the main page of the moex.com website .
As you can see, the stock market, which includes stocks, bonds and shares traded on the stock exchange, is only 25%. Comparable daily turnover is the futures market, which includes trading in futures and options (in one word derivatives). And a significant share of the 50% is occupied by the foreign exchange market, which is not surprising, since the main operations between banks in foreign currency take place in this section. But back to the topic of fasting, to the futures market, as in this section there is a very big advantage over the foreign exchange market. In more detail, we will focus on futures, since options are quite a complex tool for the average person, and options are mainly used by professional market players.

A futures contract is a derivative instrument for the sale and purchase of an underlying asset, which can be an index, a share, a currency pair, or goods (oil, gold, etc.) that has two mandatory parameters — price and time of sale (supply). For example, consider the dollar futures.



Each contract has its own short title (Si - futures for the dollar, Eu - for the euro) and its expiration date. Below are the main parameters of the contract, for convenience, I highlighted those that we will consider:



On the futures exchange traded lots. One lot of futures for a dollar is equal to 1000 dollars, therefore the quotation 66782 rubles is equivalent to 1000 dollars.

What does the term of the contract, which is indicated by the short name of the futures contract Si-3.15, mean? If you think that in the future the dollar will be higher than the current price, then you buy at the current price of 66782 rubles and suppose you forget for a while. Considering that each futures has its own “lifetime”, then on March 16 (expiration day) your current contract will end and if the average price is on that day (namely, as indicated in the parameters, the average price in the time interval 12.25-12.30 GMT) will be equal to 70000, then you will get a profit of 3218 rubles for one lot). In other words, you initially bought at the price of the future 66782, since the market decided that this price would be on March 16th.

Futures contracts can be settlement, as in our example, and deliverable. If dollar futures were deliverable, on March 16 you would have dropped $ 1,000 to your currency account at 66.78, you could have sold it immediately at price 70 on the MICEX currency section and would get a profit of 3218 rubles. This is what happens with deliverable futures, which include all futures contracts, where the underlying asset is a stock (Gazprom, Sberbank, etc.).

Of course, it was not necessary for you to keep this lot until March 16, you could sell it at any time. And I must also say that the result of the transaction is not formed at the time of closing the transaction, as it happens in stocks. The futures contract has a daily calculation of the result at the end of the trading session at 13.45 and 18.30 Moscow time (day and evening clearing), so the account will change every day. This, by the way, is a very important feature of the derivatives market.

If you initially planned to keep the “purchased” dollars longer than March 16, then there are two options: either you go to the next contract on March 16, it will already be Si-9.15, or you could buy the September contract from the beginning. There are only four expirations per year (March, June, September and December).

Now let's deal with the "economy" of our deal. And here the fun begins.

As can be seen from the futures parameter table, there is such a very important parameter as Guaranteed Provision (GO), i.e. This is the money that the exchange freezes from your account. In our example, GO futures for the dollar is equal to 8086 rubles. As a result, you bought $ 1,000 for 66782, and "paid" only 8086 rubles. The rest of the money will remain in your account. Technically, you have an 8-fold leverage, in other words, we can say that you bought "on credit".

The size of the shoulder = 66782 rubles. / 8086 rubles = 8.25
But the most important thing is a free shoulder! You will not pay a penny for this marginality, as it would with the purchase of shares or currencies on the MICEX currency section.

We continue our "economy". If you bought 1 lot on the MICEX currency section, you would use 100% of your funds. As a result, the profit from the transaction amounted to about 5%.

Profit on the MICEX currency section = 3218 rubles / 66782 rubles = 4.8%
But in our example, the profit will be much higher, since we used the “leverage effect”. After buying 1 lot, as you already know, the exchange “freezes” 8086 rubles as GO. Further, given that the result changes every day due to the movement of the quotation, the rate may fall, so there must be some reserve on the account, for example, 20 thousand rubles. The remaining funds 38696 rubles. we can use for another different purpose.

Profit on the derivatives market = 3218 rubles / (8086 + 20 000) rubles = 11.4%

You tell me what else you need to take into account the commission for the transaction? The fact is that it is so small that it should not even be taken into account in the calculations. The average commission of brokers for a transaction is 2 rubles per 1 lot (contract). As you understand, the costs of the entire transaction will be equal to only 4 rubles!

You should be warned against the mistake that all sophisticated "investors" make. Given the free shoulder and low HO, the newly formed participants enter into the transaction for all available funds, i.e. in our example, we could buy 8 contracts, which is equivalent to 8000 dollars. This is very dangerous and, as a rule, always leads to large losses, so I strongly recommend using a maximum of the first shoulder.