- This topic has 5 replies, 2 voices, and was last updated 7 years ago by
.
- Posts
hello
I don’t understand how the dealer knows what the value of your future is on the last day of the trading period if you are selling them for diffrerent amounts
The dealer is the person who fixed the futures prices from day to day. On the last day of the future the price will be the same as the spot rate on that day (but, of course, as you will know from my free lectures, futures are not left until the final day – they are bought and sold within the period at whatever the prices happen to be on the relevant days.)
I understand that. If I buy a future today and sell it tomorrow. Is there a printed bit of paper with the price i paid? I just don’t understand with something that has a different value every day that if i did for example have to pay on the last day (unlikely i know) how would i exchange my futures for the price agreed/
No – there is no printed piece of paper, and you will not have actually paid anything! It is only at the end of the contract that the dealer takes the difference between the sell and the buy prices and calculates what you owe them or what they owe you.
I do suggest that you watch my free lectures on foreign exchange risk management, where I explain all this in detail with examples.
I do watch your lectures and i understand the principle. What I do not understand is that if i buy 50 contracts of $/GBP at 1.505 today, if there is only a gamble which means i may make a profit selling my 1.505 today at 1.508 tomorrow there must be some evidence that the chap buying my futures will be able to trade them on the last day. I know i sell them before that
There are lots of people buying and selling futures all the time. Just as with shares, the dealer fixed the price each day to make sure there are enough people both buying and selling. If no-one is buying at the moment, then the price is reduced (so people start buying). If no-one is selling at the moment, then the price is increased (so people start selling). This is exactly what happens with share prices.
- The topic ‘Currency futures’ is closed to new replies.