1. Centralized trading system. Financial futures are traded centrally on futures exchanges or stock exchanges. Futures exchange is the place where futures contracts are bought and sold, and it is the core of the futures market. Futures exchanges provide trading places and necessary trading facilities for futures trading, formulate standardized futures contracts, formulate rules and regulations for futures trading, supervise the trading process, control market risks, ensure the implementation of various systems and rules, provide futures trading information and undertake important functions of organizing and supervising futures trading.
Futures exchanges generally implement membership system (but there is a tendency of corporatization recently). Only exchange members can directly enter the market for trading, and non-member traders can only entrust exchange member commission agents to participate in trading. The commission agent is usually a futures brokerage company, which is an intermediary institution established according to law to conduct futures trading on behalf of customers and charge a certain fee. There are two kinds of matching transactions in futures trading: market maker and bidding. The market maker model, also known as the quotation-driven model, means that the buying and selling price of a transaction is quoted by the market maker, and traders can buy and sell with the market maker after accepting the quotation from the market maker, and the entrustment between traders is not directly matched and matched. Bidding mode, also known as instruction-driven mode, refers to the direct matchmaking and matchmaking according to certain rules (such as price priority and time priority) after the trader's entrustment enters the matchmaking system through the brokerage company, and the transaction is completed. No matter which way is adopted, futures trading must follow the principle of "openness, fairness and justice" to ensure the normal and orderly conduct of futures trading.
2. Standardized futures contracts and hedging mechanisms. Futures contracts are standardized contracts designed by the exchange and announced to the market after approval by the competent authorities. Futures contracts have unified provisions on the variety, trading unit, minimum price change, daily price limit, contract month, trading time, last trading day, delivery date, delivery place and delivery method of basic financial instruments. Except for some contract varieties, the only variable is the transaction price of basic financial instruments. The transaction price is generated by public bidding in futures trading.
Futures contracts are designed as standardized contracts in order to facilitate both parties to hedge their reverse transactions before the contract expires, thus avoiding physical delivery. Standardized contracts and hedging mechanisms make futures trading attractive to hedgers and speculators, who use futures trading to preserve or profit from it. In fact, most futures contracts are not delivered in kind, and they are usually closed before the maturity date.
3. Margin and its leverage. In order to control the risks of futures trading and improve the efficiency, the member brokerage companies of futures exchanges must pay the settlement deposit to the exchanges or clearing houses, and both parties to futures trading must pay a certain amount of deposit to the exchanges or clearing houses through brokers after the trading. The main purpose of setting up margin is to stop the loss of traders in time and prevent the occurrence of refusal to pay. Futures trading margin is the financial guarantee for buyers and sellers to fulfill their obligations under futures contracts, which plays the role of performance guarantee. The margin system enables each futures transaction to have funds suitable for the risks it faces as the capital guarantee, and can handle the profits and losses in the transaction in time. This system provides a safe and reliable guarantee for the performance of futures contracts.
In futures trading, both buyers and sellers may lose money in the final settlement, so both parties have to pay a deposit. The deposit paid by both parties at the time of transaction is called initial deposit, and the balance of the deposit account should be adjusted by comparing the settlement price announced by daily settlement with the transaction price. Due to the change of market conditions, traders' margin accounts will generate floating gains and losses, so the funds actually available in the margin accounts to make up for losses and provide guarantees will change at any time. The margin account must maintain a minimum level, which is called maintaining margin, and this level is stipulated by the exchange. When the trader loses money continuously and the margin balance is not enough to maintain the minimum level, the clearing house will issue a notice of additional margin through the brokerage firm, requiring the trader to recover the margin within the specified time to reach the initial margin level. If the trader fails to make up the margin within the specified time, the ownership of futures trading will close the futures contract of the trader, and the losses caused thereby shall be borne by the trader himself.
The margin level is set by the exchange or clearing house. Generally, the initial margin ratio is 5% ~ 10% of the futures contract value, but there are cases as low as 1% or as high as 18%. Because the margin ratio of futures trading is very low and highly leveraged, this is also an important reason why the futures market is attractive. This kind of leverage enables hedgers to find ways to avoid price risks for large-value spot assets with a small amount of funds, and also provides speculators with opportunities to make profits with a small amount of funds.
4. Clearing houses and debt-free settlement systems. Clearing house is a clearing house specializing in futures trading, usually attached to the exchange, but established as an independent company. Clearing houses usually adopt membership system. All futures transactions must be conducted by clearing institutions through clearing members, not directly by both parties to the transaction. The clearing house is responsible for determining and publishing the daily settlement price and final settlement price, collecting and managing the margin, clearing the futures contracts traded daily, adjusting and balancing the margin accounts of clearing house members, supervising and managing the physical delivery of expired contracts, and publishing relevant information such as transaction data.
Clearing houses implement a debt-free daily settlement system, also known as the day-to-day mark-to-market system. The average transaction price of each futures contract in the last l minutes or several minutes before the closing of the trading day is taken as the settlement price of the day, and compared with the price at the time of each transaction, the floating gains and losses of each clearing house member account are calculated to carry out market clearing. Because the daily mark-to-market system takes 1 trading day as the longest settlement cycle, the trading positions of all accounts are calculated according to different maturity dates, and all trading gains and losses are required to be settled in time, so as to adjust the margin accounts in time and control market risks.
After the futures contract is concluded, both buyers and sellers don't need to know who their counterparties are, because all transactions are recorded in the account of the clearing house, which becomes the opponent of all traders and acts as the seller of all buyers and the buyer of all sellers; When the contract is hedged or closed due, the clearing house is responsible for all profit and loss liquidation. Such a settlement system provides a simple and efficient hedging mechanism and settlement procedure for futures trading, thus improving the efficiency and security of futures trading.
As the clearing house has become the opponent of all traders, it has also become the performance guarantor of all contracts concluded, and bears all the credit risks, so that both parties to the transaction do not have to review each other's financial resources and credit standing, nor do they have to worry about whether the other party will perform on time. This settlement system eliminates the potential credit risk in the futures market and improves the liquidity and security of the futures market.
5. Limited warehouse system. The position limit system is a system for the exchange to prevent excessive concentration of market risks, market manipulation and limit the number of positions held by traders. According to different purposes, you can set the position limit according to the amount of margin, the position limit of members and the position limit of customers. Usually, the position limit system also implements the principles that the recent months are stricter than the forward, the hedgers and speculators are treated differently, the institutions and retail investors are treated differently, the total position limit is combined with the proportional position limit, and the reverse position cannot be offset.
6. Extended family reporting system. The large account declaration system is a risk control system in which members or customers must declare the account opening, trading, capital source and trading motivation to the exchange when their positions reach the number specified by the exchange. , so that the exchange can examine whether there is excessive speculation and market manipulation in large accounts and judge the trading risk status of large accounts. Usually, the large-scale declaration limit stipulated by the exchange is less than the position limit, so the large-scale declaration system is a barrier to the position limit system. Prevent large households from manipulating the market. For members or customers suspected of manipulating the market, the trading right restricts them from establishing new positions or requires them to close their positions at any time. If a member or customer fails to close his position within the time specified by the exchange, the ownership of the transaction will force him to close his position.
Warehouse restriction system and large household reporting system are effective mechanisms to reduce market risks, prevent human manipulation and provide an open, fair and just market environment.