Cfd Information

3922 Words Dec 6th, 2013 16 Pages
-pit trading: floor-based trading, very physical activity.
-offsetting, is the same as selling a previously purchased stock or buying back a stock to close a short position. futures contracts are fungible: any futures contract can be offset by an equivalent futures contract . Fungibility is assured by the clearinghouse that inserts itself in the middle of each contract and, therefore, becomes the counterparty to each party.
-margin: long or short position in a futures, deposit sufficient funds in a margin account.
-In the stock market, "margin" means that a loan is made. The loan enables the investor to reduce the amount of his own money required to purchase the securities, thereby generating leverage or gearing.
…show more content…
The U.S. government issues both instruments: Treasury notes have an original maturity of2 to 10 years, and Treasury bonds have an original maturity of more than 10 years. Futures contracts on these instruments are very actively traded on the Chicago Board of Trade. For the most part, there are no real differences in the contract characteristics for Treasury note and Treasury bond futures; the underlying bonds differ slightly, but the futures contracts are qualitatively the same. We shall focus here on one of the most active instruments, the U.S. Treasury bond futures contract.
The contract is based on the delivery of a U.S. Treasury bond with any coupon but with a maturity of at least 15 years. If the deliverable bond is callable, it cannot be callable for at least 15 years from the delivery date." These specifications mean that there are potentially a large number of deliverable bonds, which is exactly the way the Chicago Board of Trade, the Federal Reserve, and the U.S. Treasury want it. They do not want a potential run on a single issue that might distort prices. By having multiple deliverable issues, however, the contract must be structured with some fairly complicated procedures to adjust for the fact that the short can deliver whatever bond he chooses from among the eligible bonds. This choice gives the short a potentially valuable option and puts the long at a disadvantage. Moreover, it complicates pricing the contract,
Open Document