Beginners in trading fall into a new, unknown world with their own rules and laws. A huge amount of incomprehensible information, terms, models will make even learned people bewildered. Any strategy on the market is to anticipate future or frequently recurring events and make money on it. Today we’ll talk about what the expiration of futures is and how you can increase your investment on this. The article will be useful not only for beginners, but also for experienced traders, regardless of the platform on which you trade, because the mechanism is the same everywhere.
Definition, terminology and terms
The word "expiration" is derived from English expiration - the completion of a certain period / term. When applied to an exchange, it means the end of trading in a particular contract. Futures expiration is divided into two types: settlement and staging. When using them, a specific date is selected on which all participants will need to fulfill their obligations. You can see it in the specification of any contract. For example, the expiration of futures on Mos. the exchange for the most popular RTS instrument occurs every quarter.
How expiration can affect trade
When the contract expires, price movements begin to make sharp leaps towards both sellers and buyers. This is because in this period there is a strong struggle between them. Several factors exert special pressure on the price in such a period: the volume and ratio between stocks and the market for production tools, the distribution of tools between all participants and the influence of market makers. As a result of these data, a high volume and volatility is formed in the market, and whoever remains the winner will indicate the further direction of movement.
Why is a newbie required to know what expiration of futures is?
For example, take the popular RTS index. His contract is changed 4 times per year, i.e. quarterly. The calendar year begins with the March futures, as its expiration date falls at the end of March. Each month and year are marked in terminals based on 3 data. First comes the designation RI (for RTS), then the month (H - March, M - June, U - September, Z - December) and ends with the number 7 (the last digit of the year 2017). As a result, one name of the futures (RIH7) already carries the basic information. It should be noted that at any time several instruments are traded on the market, since the expiration of futures is six months, but the active phase begins three months before the end of the term.
Surely you have a question: what is done with the contract after its termination? The exchange simply closes it at the current market price and transfers profit or loss to the trader's account. Therefore, even if you yourself did not close your contract, there is nothing wrong with this, but it is still better to switch to a new contract in advance. You can do this yourself in the terminal settings.
Brent Oil Futures
Due to the great popularity of the oil trade, we want to tell you about how the expiration of brent futures occurs, what it is and how you can make money on it. When trading this tool, you must first take into account factors that affect its value in the near future. These include: the rate of inflation, the state of the fuel base for 5-10 years, the possible impact of new technologies and, of course, geopolitics. It should be noted that trading in oil futures differs from trading in instruments on the commodity exchange in the following areas:
1) no need to think about how to transport and where to store;
2) until the expiration, the contract will be resold;
3) you can earn or lose only on the price difference.
If you still decide to trade this tool, then you need to study in more detail all its elements and factors of influence on it.