Basic information on futures prices

There are two main public bidding methods in the futures market: one is the computer automatic matching method, and the other is the open outcry method. In China's futures exchanges, all transactions are automatically matched by computers. In this way, the formation of futures prices must follow the principles of price priority and time priority. The so-called price priority principle means that after the transaction order enters the exchange host, the best price is executed first, that is, the highest bid price and the lowest selling price order are executed first. The principle of time priority means that when the prices are consistent, the trading order that enters the trading system first is executed first. The exchange host automatically matches the instructions entering the host according to the above two principles, finds a price acceptable to both buyers and sellers, and finally completes the transaction and feeds it back to the member who made the transaction. Futures prices include concepts such as opening price, closing price, highest price, lowest price, and settlement price. In Chinese exchanges, the opening price refers to the first transaction price after the transaction starts; the closing price refers to the last transaction price when the transaction closes; the highest price and the lowest price refer to the highest transaction price and the lowest price in the day's trading respectively. Transaction price; settlement price refers to the weighted average price of all-day transactions. First, you need to understand the composition and main functions of the United States Department of Agriculture. The U.S. Department of Agriculture is composed of various national joint-stock companies, such as agricultural product credit companies, federal agencies and other agencies. It is a government agency directly responsible for the export promotion of agricultural products. It integrates agricultural production, agricultural ecology, life management, and domestic and foreign trade of agricultural products. , implement integrated management of agricultural pre-production, mid-production and post-production. Among them, the one most directly related to interests is responsible for the export promotion of agricultural products. In a word, responsible for the sales of domestic agricultural products in the United States. If this is confirmed, there is no doubt that the original intention of the USDA in releasing data is to at least achieve the goal of smooth and high-priced sales of domestic agricultural products.

Secondly, let’s analyze how the USDA achieves its purpose from the perspective of soybeans. U.S. soybeans are generally planted at the end of April and harvested and put on the market in September. Export sales contracts for new year soybeans may begin before they are put on the market in August, and the sales price is often determined through the CBOT futures market. Therefore, the supply and demand data released by the USDA in August are extremely critical. Based on the past years, we found that the USDA data in August is often bullish for futures prices. Since August is the critical period for soybean growth - the grain-filling period, the weather at this time is extremely critical to the growth of soybeans, and there are many topics that can be speculated on, such as Asian rust spores, drought, late frost, etc. Therefore, the USDA’s move to lower yields and output in August was a high-sounding move, thereby lowering its forecast for the new year’s end-of-year carryover stocks, indirectly driving up prices and paving the way for high-priced U.S. soybean exports.

It is the end-of-period carryover inventory data that has a decisive impact on prices. It is found that in the past 7 years, except for 2004, the August forecast for the other 6-year end-of-period inventory forecast data has decreased compared with July. Among them, the largest reduction was in 2002, from 6.27 million tons to 4.21 million tons.

The reduction in ending inventory is mainly achieved through changes in production. Analyzing the adjustment of production in the August reports of the USDA in eight years, we found that except for 2007/2008, which had no changes and 2003/2004, which lacked data, the forecasts were lowered in August in the other six years, while in September and 2004, the forecasts were lowered. It is often raised again in October. For example, in 2002, the production forecast was reduced by 8%, from 77.84 million tons to 71.53 million tons. In addition, changes in yield in August are generally focused on changes in yield, with relatively little change in area. For example, in 2008/2009, yield dropped slightly by 0.9%, and in 2006/2007, yield dropped from 40.7 bushels per acre to 39.6 bushels. /acre, a decrease of 2.7%.

After the USDA adjusts its forecast data, the futures market should indeed "sound" to change. The CBOT soybean market often either rebounds or continues to rise in August. For example, in 2008, CBOT soybean futures fell after reaching a historic high in July. However, the monthly report released by the U.S. Department of Agriculture on August 12 caused the market to stop falling and rebound. The August report cooperated with the later weather speculation. CBOT soybean November contract price rose from 116 cents to 1,374 cents, a rebound of 17%.

As futures market participants, only after we understand the intentions of the USDA and the rules for publishing reports can we turn from passive to active and actively adjust our investment strategies. There is a basic law in economics called the "Law of One Price." This means that two identical assets must have the same quotation in the two markets, otherwise a market participant can engage in so-called risk-free arbitrage, that is, buying at a low price in one market and selling at a high price in the other market. Eventually, the price of the asset in the originally low-priced market will rise due to increased demand for the asset, while the asset's price in the originally high-priced market will fall until the last two quotes are equal. Therefore, the forces of supply and demand will produce a fair and competitive price so that arbitrageurs cannot obtain risk-free profits.

We briefly introduce the position cost pricing model of forward and futures prices.

The model has the following assumptions:

Futures and forward contracts are the same;

The corresponding assets are divisible, which means that stocks can be fractions or fractions;

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Cash dividends are certain;

The interest rates on borrowed and loaned funds are the same and known;

There is no limit on short selling of spot, and it can be done immediately Get the corresponding payment;

There are no taxes and transaction costs;

The spot price is known;

The corresponding spot assets have sufficient liquidity.

This pricing model is based on the assumption that futures contracts are a temporary substitute for future transactions in spot assets. A futures contract is not a real asset but an agreement between a buyer and seller who agree to conduct a spot transaction at a later date, so no money changes hands at the beginning of the agreement. The seller of a futures contract cannot receive cash until the corresponding spot is delivered, and therefore must be compensated to make up for the income from the immediate funds given up by holding the corresponding spot. On the contrary, the buyer of a futures contract will pay cash to deliver the spot at a later date and must pay the cost of using the capital position to postpone the spot payment. Therefore, the futures price must be higher than the spot price to reflect these financing or position costs (this financing cost is generally used in this paragraph time's risk-free rate).

Futures price = spot price + financing cost

If the corresponding asset is a stock portfolio that pays cash dividends, then the party who purchases the futures contract does not hold the stock portfolio immediately because it does not hold it immediately. Dividends received. In contrast, the seller of the contract receives dividends for holding the corresponding portfolio of stocks, thus reducing its holding costs. Therefore, futures prices will adjust downward by an amount equivalent to the dividend. As a result, the futures price is a function of the net position cost, that is, the financing cost minus the return on the corresponding asset. That is:

Futures price = spot price + financing cost - dividend income

Generally, when financing costs and dividend income are expressed by continuous compound interest, the index futures pricing formula is: < /p>

F=Se^(r-q)(T-t)

Where:

F=the value of the futures contract at time t;

S=The value of the underlying asset of the futures contract at time t;

r=An investment that expires at time T, time t is the risk-free interest rate (%) calculated by continuous compound interest;

q=Dividend yield, calculated as continuously compounded (%);

T=Futures contract expiration time (year)

t=Time (year)

Consider a 3-month futures contract on the S&P 500 Index. Assume that the stock dividend yield used to calculate the index is converted to continuous compound interest of 3% per year, the present value of the S&P 500 index is 400, and the risk-free interest rate of continuous compound interest is 8% per year. Here r=0.08, S=400, T-t=0.25, q=0.03, the futures price F is:

F=400e^(0.05)(0.25)=405

We will This equilibrium futures price is called the theoretical futures price. In practice, because the conditions assumed by the model cannot be fully satisfied, it may deviate from the theoretical price. But if these factors are taken into account, empirical analysis has proven that there is no significant difference between actual futures prices and theoretical futures prices.