Futures

Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.


Futures Speculation

 

Futures contracts are used to manage potential movements in the prices of the underlying assets. If market participants anticipate an increase in the price of an underlying asset in the future, they could potentially gain by purchasing the asset in a futures contract and selling it later at a higher price on the spot market or profiting from the favourable price difference through cash settlement. However, they could also lose if an asset's price is eventually lower than the purchase price specified in the futures contract. Conversely, if the price of an underlying asset is expected to fall, some may sell the asset in a futures contract and buy it back later at a lower price on the spot.


Futures Hedging
 

The purpose of hedging is not to gain from favourable price movements but prevent losses from potentially unfavourable price changes and in the process, maintain a predetermined financial result as permitted under the current market price. To hedge, someone is in the business of actually using or producing the underlying asset in a futures contract. When there is a gain from the futures contract, there is always a loss from the spot market, or vice versa. With such a gain and loss offsetting each other, the hedging effectively locks in the acceptable, current market price.


Previous engagements working with futures contracts have included:

  • Developing trading strategies, optimising portfolios and improving execution strategies for a $7 Bill. AUM global hedge fund in over 180 contracts across all asset classes.
  • Developing trading strategies for a $2 Bill. AUM global hedge fund, specifically implementing AI methods to find alternatives to trend following strategies, in FX, Equity and Fixed Income contracts.