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Hello sir, I would like to ask.
For example, UK company is going to receive US$10000 from US company in future.
whats the logic of uk co need to sell futures now the buy it later?
does it mean at first place, the UK company already had futures?No it does not. It is possible to buy futures now and sell them later, or you can sell futures now but must buy them back later. It is the same with shares – you can sell shares now that you do not have, but you must buy them back later.
I do explain this in my free lectures.
I watched the free lectures but theres no explanation about this part. Im not sure whether im missing it out. (Sorry) I wil check it.
The buy then sell part I understood. Its just I cant seem to understand the sell-buy part.
Why we sell futures now when we dont have futures?
Would you mind to explain further?If you expect the futures price to go up then by buying now and selling later you make a profit. (If you are wrong and the price falls, then you make a loss.)
If you expect the futures price to fall, then selling now and buying later will make a profit. (But again, if you are wrong and the price increases then you make a loss.
It is the same idea with all traded instruments. It happens a lot with shares – if people expect the share price to fall then they will sell shares now and then buy back later when the price is lower.
I do explain this, but appreciate that you cannot be asked to do calculations on futures in Paper FM – only to be able to explain the idea.
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