1. Introduction to the Futures Market
Ag. Econ. 160
Dr. James Cothern

2. The Marketing Manager and Risk Management
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Introduction to the Futures Market

3. Why Study The Futures Market?
Futures Market a Laboratory Which Reacts to All Economic Phenomena
Prices Respond to Many Differing Events, Futures Markets React Instantly
Pricing Products and Locking in Costs For Profit are The Most Important Job in Marketing, Futures Offers Alternatives Available No Where Else
Incorporates All You Have Learned in Economics
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Introduction to the Futures Market

4. Evolution of the Futures Market
“Futures Market Today is an international phenomena..Financial futures domminate…Why?
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Introduction to the Futures Market

5. The Role of the Exchange Today
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Introduction to the Futures Market

6. Futures vs. a Forward Contract
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Introduction to the Futures Market

7. Introduction to the Futures Market
Market Participants
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Introduction to the Futures Market

8. The Role of Hedgers and Speculators
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Introduction to the Futures Market

9. Participants Use Margin in Trading
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Introduction to the Futures Market

10. Characteristics of a Futures Contract
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Introduction to the Futures Market

11. Contract Specifics: Commodities
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Introduction to the Futures Market

12. Contract Specifics: Commodities (Cont.)
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Introduction to the Futures Market

13. Commodity Characteristics: WSJ
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Introduction to the Futures Market

14. Daily Pricing Activity With “Quotes”
Transactions or Trades Continue Throughout the Day
Trades can vary through a great range of prices depending on how much volatility is in the market
Exchanges Use a Series of Summary Terms to Explain this daily activity
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Introduction to the Futures Market

15. Futures Quotes: Terms Used in Trading
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Introduction to the Futures Market

16. Reading a Quote:Understanding“Settle” and “Change”
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Introduction to the Futures Market

17. Understanding Cotton Quotes
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Introduction to the Futures Market

18. Understanding Corn and Soybean Quotes
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Introduction to the Futures Market

19. Understanding Live Cattle Quotes
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Introduction to the Futures Market

20. Types of Orders Traders Use in Trading
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Introduction to the Futures Market

21. Introduction to the Futures Market
Order Placement
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Introduction to the Futures Market

22. Order Placement: The Game
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Introduction to the Futures Market

23. Introduction to the Futures Market
Order Types
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Introduction to the Futures Market

24. Introduction to the Futures Market
Duration of Orders
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Introduction to the Futures Market

25. A Speculative Trade: Beth Bigbucks and Dennis Deepocket
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Introduction to the Futures Market

26. Trade Example: Beth’s Profits
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Introduction to the Futures Market

27. Trade Example: Dennis’ Loss
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Introduction to the Futures Market

28. Why Do Cash and Futures Prices Differ?
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Introduction to the Futures Market

29. Convergence of Cash and Futures Prices
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Introduction to the Futures Market

30. Convergence: Futures Above Cash
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Introduction to the Futures Market

31. Convergence: Cash Above Futures
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Introduction to the Futures Market

32. Basic Hedge: Cash Market Falls
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Introduction to the Futures Market

33. Basic Hedge: Cash Market Rises
Perfect Hedge: Affected by Zero Basis
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Introduction to the Futures Market

34. Hedge Example: Cotton Zero Basis
A “Perfect” Hedge Because Cash and Futures Were
Exactly Equal at Time of Contract Termination…Good for
Exemplary Circumstances But Unlikely
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Introduction to the Futures Market

35. Hedge Example: Cotton “Off” Basis
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Introduction to the Futures Market

36. Hedge Example: Cotton “On” Basis
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Introduction to the Futures Market

37. Incentives to Make or Take Delivery
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Introduction to the Futures Market

38. “Long” Hedge:Price Rises, Zero Basis
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Introduction to the Futures Market

39. “Long” Hedge: Price Falls, Zero Basis
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Introduction to the Futures Market

40. Risk Management Program Mandatory Today
The Futures Market Today
Diverse and Complex
Financial futures dominate
Trading in Eurodollars: Interest rate risk
Major Companies Hedge Many Types of Risk
Airlines: What Might They Wish to Hedge? How?
Construction and developers: What and How?
Lenders: What and How?
What has happened recently with interest rates?
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Introduction to the Futures Market

41. Futures Market Glossary
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Introduction to the Futures Market

42. Introduction to the Futures Market
Summary
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Introduction to the Futures Market

43. Introduction to the Futures Market
Summary (Continued)
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Introduction to the Futures Market