Buy price and sell price
Futures contracts have two prices: buying and selling. Bid Price is that at which you will sell your contracts. The sale price is this at which you will buy your contracts. Purchase price is always lower than the selling price, and the spread ("spread" of English) is called the difference between the two prices. In a smaller quantity of traded contracts is obtained more pronounced spread with greater difference between the buying and selling prices. In a larger quantity of contracts is achieved less difference between the buy prices and sell or a narrower spread. Every futures trader has an interest from a narrow spread.
Buyers and Sellers
The market is flexible and allows you to be both buyer and seller of futures. While on the other side there is someone who wants to buy or sell your contract, you can choose your position and create contracts.
Long and Short positions
Take a long position when buying and a short position when selling. The speculation with futures contracts is based on the assumption that the price will rise or fall. So when you aim a purchase at low price and expect selling at a higher price, it is a long position. In short position is the opposite. Futures price constantly changes and every day it is different. Your goal is to determine the direction in which the price will continue to change.
Analysis of market environment
As we found the price of futures is dynamic and every day it is different. For this purpose, some exchanges limit the maximum daily movement of certain contracts. Depending on the type of exchange and futures the contracts may:
- Stop trading for several minutes and to open with new price limit
- Stop trading for several minutes and to open with the same price limit
- Cease to be traded during the current session
Futures contracts have the so called "Limit up" and "Limit down" thresholds. If the contract price increases or decreases too much, marketing on this contract will stop for several minutes. Then the exchange decides whether to suspend the trading for the day or to continue. This measure applies to be prevented any panic on the stock exchange.
Trading with futures contracts and margin trading
In margin trading when you buy or sell futures you do not pay for the full value of the transaction. The price you pay is much less and it is a guarantee of maximum departure from the original price. This is possible because of the margin effect. For example, if you buy 100 fine troy ounces of gold, you must pay $ 100,000 (market value of $ 1,000 each). Margin effect reduces this amount to $ 5,000. Depositing it, you warrant to your broker that in case of loss you can cover the negative difference. Margin that is used to detect the position is called "original". After completing the transaction the margin is "ongoing". It is defined specifically by each exchange and usually it is lower than the initial margin.
Minimum margin requirements
Minimum margin requirements are not determined by your broker. They are established by the Clearing House and they are not permanently fixed. It can change these values at any time. Also, your agent may increase the requirement for a minimum margin over the set level by the clearing house. Your broker can bring to you so called "Margin call". This is a notice that you get from him when your losses threaten the balance in your account. In this case it is necessary to deposit additional funds or to cancel your current position.