How big is the futures market?
In 2022, 29.32 billion futures contracts were traded worldwide, up from 12.13 billion in 2013. The number of options contracts traded increased from 9.42 to 54.53 billion contracts in the same period. Both contracts are financial derivatives, used to manage financial risk and speculate on future market performance.
Volume is reported for all futures contracts. It is calculated by counting the number of contracts that have been bought and sold over a given time.
The global derivatives market size was USD 21980 million in 2020 and market is projected to touch USD 59170 million by 2032, at a CAGR of 8.6% during the forecast period. The derivatives market is a kind of financial instrument. They are generally expressed as an agreement between two entities.
CME Group (Chicago Mercantile Exchange)
The CME Group is the world's largest futures exchange and offers trading in a broad range of futures and options contracts across asset classes, including agricultural commodities, energy, metals, equity indexes, and foreign exchange.
| Matched Volume | Market* | Today |
|---|---|---|
| MIAX (M,P,D) | 6,472,353 | 15.07% |
| BOX Options | 2,194,135 | 5.11% |
| Members Exchange (U) | 584,841 | 1.36% |
| Total | 42,936,991 | 100% |
Usually, price changes are measured in percent – from low to high within a certain period of time. It is considered in futures trading that: involatile market fluctuates within 1% (maximum 2%) during a day; fluctuations above 10% show that the market has a high volatility.
Depth of market (DOM) is a measure of the supply and demand for liquid, tradeable assets. It is based on the number of open buy and sell orders for a given asset such as a stock or futures contract. The greater the quantity of those orders, the deeper or more liquid, the market is considered to be.
Buffett's derivative trades are structured to limit potential losses. For instance, his equity put option contracts ensured upfront premiums with pay-outs contingent on highly unlikely market scenarios. By carefully assessing risk and unlikely outcomes, Buffett manages to generate returns on his derivative investments.
“NSE Group (National Stock Exchange of India and NSE International Exchange) has once again emerged as the world's largest derivatives exchange group in the calendar year 2023 by number of contracts traded based on statistics published by Futures Industry Association (FIA), a derivatives trade body," said the stock ...
Credit, equity and commodity derivatives notional outstanding totaled $9.9 trillion, $6.9 trillion and $2.3 trillion, respectively. The gross market value of OTC derivatives grew by 66.8% to $20.7 trillion at year-end 2022 versus the end of 20212.
What is the most traded futures?
Crude oil leads the pack as the most liquid commodity futures market followed by corn and natural gas. Agricultural futures tend to generate the highest volume during periods of low stress in the energy pits, while gold futures have gone through boom and bust cycles that greatly impact open interest.
There are 185 stocks whose futures and options that you can trade in India.
| Sym | Name | High |
|---|---|---|
| ZNM24 | 10-Year T-Note | 111-010 |
| ZFM24 | 5-Year T-Note | 107-117 |
| NMH24 | Nasdaq 100 Micro | 18,378.25 |
| ESH24 | S&P 500 E-Mini | 5,146.00 |
Options offer strategic advantages in different market environments, and many professional investors use them to their advantage on a regular basis – even Warren Buffett, king of buy-and-hold value investing, uses them as part of his strategy.
Further evidence suggests that options trading induces excessive corporate risk-taking activities that destroy firm value and increases CEO compensation convexity. Overall, the results are consistent with an active options market increasing firm default risk by inducing excessive shifting of risk.
A lot size in futures is a minimum ticket size of shares that you can trade in futures. When trading futures and options, you can only buy and sell these products in a minimum of one lot or multiples of the lot size. For example, the lot size of Nifty is 75 units so you can only trade Nifty in multiples of 75.
An options trader has to pay attention to time decay because it can severely erode the profitability of an option position or turn a winning position into a losing one. Futures, on the other hand, do not have to contend with time decay.
That said, generally speaking, futures trading is often considered riskier than stock trading because of the high leverage and volatility involved that can expose traders to significant price moves.
Because margin magnifies both profits and losses, it's possible to lose more than the initial amount used to purchase the stock. If prices move against a futures trader's position, it can produce a margin call, which means more funds must be immediately added to the trader's account.
Futures look into the future to "lock in" a future price or try to predict where something will be in the future; hence the name. Since there are futures on the indexes (S&P 500, Dow 30, NASDAQ 100, Russell 2000) that trade virtually 24 hours a day, we can watch the index futures to get a feel for market direction.
What is futures marked to market?
Mark to market is an alternative to historical cost accounting, which maintains an asset's value at the original purchase cost. In futures trading, accounts in a futures contract are marked to market on a daily basis. Profit and loss are calculated between the long and short positions.
This figure surpasses the world's gross domestic product (GDP) by roughly double, highlighting the enormity of the market. JPMorgan Chase, in particular, is noted for its substantial exposure to derivatives risk, topping the list with roughly $58 trillion in derivatives.
Warren Buffett has been very vocal about his disdain for gold as an investment. He sees little to no value in it. What Buffett refers to as a lack of value results from a lack of usefulness. He once stated about gold, "It doesn't do anything but sit there and look at you."
Apple is Berkshire's largest public stock holding by far. Berkshire's $155 billion Apple stake is roughly four times larger than its second-largest holding. Buffett first bought Apple shares in the first quarter of 2016, and Apple's stock price is up more than 500% since the beginning of 2016.
Five of the more popular derivatives are options, single stock futures, warrants, a contract for difference, and index return swaps.
