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:: How to Read Futures from the FT ::

We have already covered in the previous article what is a future and why one might wish to want to invest in the futures market. Firstly, and most importantly, a future is used to protect investors/companies against fourthcoming changes (e.g. interest rate and currency exchange rates) which may affect their trade - hedging tools. However, many traders see the trading of futures as an opportunity to make some money.

Futures can be found on a widely varied forms of assets these days. These include futures on interest rates, equities, currencies, bonds, and stock index futures. There are over 40 recognised, regulated derivatives exchanges in the world. In the UK the London International Financial Futures Exchange (LIFFE) is the primary market for trading of options and futures. In the US the two largest (and the two oldest) exchanges are the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBT).

So how does one go about reading future prices from the Financial Times (FT)? Consider the table below of currency futures taken from the FT (10th May 2001):

The top part of the table is the currency future of the US dollar against other currencies in the world according to the CME. At the top left of the table is the date at which these quotes were made, in this case 9th of May 2001. The first column consists of a list with futures for the US dollar against various currencies. Here rows one and two are the Dollar against the Euro. The following two rows are for Dollar - Swiss Francs. The second column shows the date at which the contract will finally be settled, we are given two dates here, June and September. The third column has the opening price of the contract on that particular trading day, and the fourth is the price at which the contract will be settle at the settlement date. Next to the settlement price is where the change in price between the open of that day and the previous day is listed. Columns six and seven are the days reported high and low values, respectively, giving an indication of the volatility of the future. The penultimate column contains a figure with the estimated estimated number of contracts actually exchange during that day. Finally, in the last column we have the number of trader that have expressed an interest in buying or selling that day.

Taking the Dollar - Swiss Franc as an example. One can secure a rate of 0.5758 Dollars per Swiss Franc to be paid at the beginning of September by entering the future contract. The loss or profit made on the future will be determined at the settlement date depending on whether the exchange rate has gone up or down.

Written by Alessio Farhadi

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