45 lines
2.5 KiB
Plaintext
45 lines
2.5 KiB
Plaintext
8
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A Complete Guide to the Futures mArket
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7. trading hours. Trading hours are listed in terms of the local times for the given exchange.
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(all U.s. exchanges are currently located in either the eastern or Central time zones.)
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8. Daily price limit. exchanges normally specify a maximum amount by which the contract
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price can change on a given day. For example, if the December corn contract closed at $4.10 on
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the previous day, and the daily price limit is 25¢/bu, corn cannot trade above $4.35 or below
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$3.85.
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some markets employ formulas for increasing the daily limit after a specified number of
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consecutive limit days.
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in cases in which free market forces would normally seek an equilibrium price outside the
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range boundaries implied by the limit, the market will simply move to the limit and virtually
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cease to trade. For example, if after the market close the U.
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s. Department of agriculture (UsDa)
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releases a very bullish corn crop production estimate, which hypothetically would result in an
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immediate 30¢/bu price rise in an unrestricted market, prices will be locked limit up (25¢/bu) the
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next day. This means that the market will open and stay at the limit, with virtually no trading tak-
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ing place. The reason for the absence of trading activity is that the limit rule restriction maintains
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an artificially low price, leading to a deluge of buy orders at that price but few if any sell orders.
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in the case of a very severe surprise event (e.g., sudden major crop damage), a market
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could move several limits in succession, although such moves are less common than in the days
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before near-24-hour electronic trading.
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in such situations, traders on the wrong side of the
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fence might not be able to liquidate their positions until the market trades freely. The new trader
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should be aware of, but not be overly frightened by, this possibility, since such events of extreme
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volatility rarely come as a complete surprise.
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in most cases, markets vulnerable to such volatile
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price action can be identified. some examples of such markets would include commodities in
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which the UsDa is scheduled to release a major report, coffee or frozen concentrated orange
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juice during their respective freeze seasons, and markets that have exhibited recent extreme
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trading volatility. For some markets, the limit on the nearby contract is removed at some point
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table 1.2 Contract Month Designations
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Month ticker Designation
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January F
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February g
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March H
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april J
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May K
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June M
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July n
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august Q
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september U
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October V
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november X
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December Z |