Introduction to Futures
Tim Barry, VP Product Development, ICE Futures U.S.
Trading Places, 1983 - Paramount Pictures
ICE: Commodity & Derivative Markets
Intercontinental Exchange (ICE) is a leading global exchange operator with regulated futures exchanges and
clearing houses for energy, agriculture, equity index and FX markets. ICE also operates leading OTC energy
and credit derivatives markets.
ICE offices in Asia, Canada, Europe & the U.S.
GLOBAL DISTRIBUTION
• Screens distributed around the globe
• Regulated futures exchanges and clearing houses in the
U.S., Europe, Canada and Asia, as well as Global OTC markets
DIVERSIFIED MARKETS
• Energy, agriculture, equity index, FX, metals interest rates and equities
• Futures, OTC and options
• Electronic and brokered
LEADING EDGE TECHNOLOGY
• Scalable infrastructure, highly accessible platform
• 3 millisecond execution time
3
Serving Global Markets
ICE operates 11 regulated exchanges and 5 clearing houses for the global financial and
commodity markets.
4
ICE: Commodity & Derivative Markets
ICE Regulated Futures Exchanges
U.S. & CANADA
AGS & ENERGY
FINANCIALS
Currency Pairs
Cocoa
U.S. Dollar Index
Coffee
Russell Indexes
Cotton
Credit Indexes
Sugar
Orange Juice
Barley
Canola
Wheat
Corn
Soybeans
North American Nat Gas
North American Power
RINs
ICE OTC
ICE Data & Services
OTC CONTRACTS
MARKET DATA
OTC Credit – Creditex
CDS – Indexes, Single Names,
Structured Products,
Sovereigns
Real-time Prices/Screens
Indices and End of Day Reports
Tick-data, Time and Sales
Market Price Validations
Forward Curves
EUROPE
ENERGY & FERROUS
METALS
Brent & Brent NX Crude
WTI Crude
Gasoil & LS Gasoil
ASCI Crude
Refined Oil Products
Natural Gas Liquids
Liquefied Natural Gas
European Natural Gas
European Power
Coal
Emissions
Iron Ore
Freight
OTC Energy – Physical Energy
Contracts
SERVICES
BRIX – Brazilian Power Markets
WebICE & ICE Mobile
ICE eConfirm
ICE Link
ICE Chat
ICE Match
Chatham Energy
Coffee Grading
Trade Vault
Global Clearing Houses
ICE Clear U.S., ICE Clear Canada
ICE Clear Europe
Integrated Markets, Clearing and Technology
5
ICE Clear Credit, The Clearing Corp
ICE Futures U.S.
›
The Business
ICE Futures U.S., Inc. is the original futures exchange of New York, a
whole-owned subsidiary of Intercontinental Exchange®
(NYSE: ICE), a leading global marketplace for price discovery
and risk management.
›
Soft Commodity Products
Futures and Options contracts on a variety of soft commodities;
Sugar No. 11®
Coffee “C” ®
Cocoa
Cotton No. 2
Frozen Concentrated OJ (FCOJ)
· Financial Products - Russell Stock Indexes ,Currency Pairs and
USDX
· Energy Products – Financial Natural Gas, Power and Emissions
6
ICE Agricultural Products
Usage
› Softs futures volumes rose 9% in 2013 to
50.2m lots
› Softs options volume fell 7% in 2013 to
9.9m lots
› Total softs volume rose 6% on year
7
What Is a Futures Contract?
Standardized, legally enforceable contracts obligating a buyer and
seller to perform certain functions within pre-set time frames.
Nearly all terms are pre-determined: quantity, quality, delivery time
frame, delivery location, etc.
Seller is obligated to make delivery, Buyer is obligated to take
delivery;
Only 2 ways to satisfy a future contract:
Make/Take Delivery; or
Execute an opposing trade in the same contract before the delivery
period.
8
Futures Contracts Offer Two Benefits
Price Discovery
›
›
›
9
What is the value of a pound of commodity-style
coffee today, for delivery at various points in time in
the future
Takes place in a centralized marketplace open to
widest potential set of buyers/sellers
Generates a stream of price data that is readily
usable by any interested market observer
Futures Contracts Offer Two Benefits
Price Discovery – who should care?
›
›
›
›
Producers/exporters of the product
End users/importers of the product
Merchants who help cash product move between the
two sets of participants
Bank Financers, lenders, governments, NGO’s –
anyone concerned about price levels for a product
10
Futures Contracts Offer Two Benefits
Risk Shifting, or Hedging
›
›
›
11
Taking a futures or options position equal and
opposite to your cash position.
As market price fluctuates, Hedge position gains
offset Cash position losses.
Works if there is a sufficiently close relationship
between Cash and Futures market prices over time.
Futures Contracts Offer Two Benefits
Risk Shifting, or Hedging – again, who
should care?
› Producers/exporters – concerned about decline in
value before they can exit cash position.
› End users/importers – concerned about increase in
value before they can obtain needed product.
› Merchants – who can have net risk on their cash
books.
› Commodity financers.
12
Who Uses Futures Contracts?
Hedgers
– any commercial market participant with price risk
who uses futures to limit or manage that risk?
Speculators
– all other traders, who use futures to take on price risk
with the intent of making a trading profit.
13
ICE Coffee “C” Futures: The World
Benchmark for Arabica Coffee Trading
14
Contract months:
March, May, July, September and December
Contract size:
37,500 pounds
Tick size:
5/100 cent per pound= $18.75 per contract
Trading Hours:
3:30 a.m. – 2:00 p.m. ET
Origins:
19 origins, including Colombia, Costa Rica,
Honduras, Peru, Brazil , Nicaragua, Uganda,
Rwanda, India
Delivery Points:
New York, Miami, New Orleans, Houston,
Bremen/Hamburg, Antwerp and Barcelona
Options Contracts are related but different
Legally enforceable contracts obligating a buyer and
seller to perform certain functions within pre-set time
frames.
Give the Buyer the right (but not the obligation) to
convert the option into a future.
Obligate the Seller to convert the option into a future
if the Buyer exercises his right.
15
Options Contracts are related but different
3 ways to satisfy an option contract:
Exercise the Option into a Future
Execute an opposing trade in the same contract
before the option expiration
Allow the Option to Expire
16
ICE Coffee “C” Options Contract: Key Terms
Contract months:
Regular Months: March, May, July,
September and December
Serial Months: all other months
Contract size:
Each option covers one futures contract
Premium:
Tick size:
Option Types:
paid in full by buyer/to seller up front
1/100 cent per pound= $3.75 per
Call Option – lets buyer convert option
into a long future
Put Option – lets buyer convert option
into a short future
17
ICE Agricultural Products
Usage
› Softs futures volumes rose 9% in 2013 to
50.2m lots
› Softs options volume fell 7% in 2013 to
9.9m lots
› Total softs volume rose 6% on year
18
Quick Facts - 2013
›
Notional value of soft commodity contracts traded on ICE in 2013 was
$1.643 Trillion USD
›
Coffee “C” traded the equivalent of 28 times global coffee production
›
Cotton #2 traded the equivalent of 7.4 times global cotton production (but
just under 22 times global exports)
›
Sugar #11 traded the equivalent of 10 times global sugar production
›
Cocoa traded the equivalent of 18 times global cocoa production
19
20
21