Basic knowledge of foreign futures trading

1.1 Definition and Characteristics

External futures: refers to futures transactions conducted in futures exchanges outside Chinese Mainland. Common exchanges include the United States, Britain, Japan, Singapore, etc.

Features: 24-hour trading, two-way trading, high leverage, multi variety selection (such as crude oil, gold, soybeans, etc.).

1.2 Trading Mechanism

Margin system: Utilizing margin leverage to amplify returns and risks.

T+0 trading: Buy on the same day and sell on the same day, with flexible trading.

No limit up or limit down restrictions: Prices fluctuate greatly, and risks and opportunities coexist.

1.3 Basic Terminology

The basic terminology of foreign futures is summarized as follows:

1、 Basic terminology

Futures contract: a standardized contract formulated by a futures exchange, which stipulates the delivery of a certain quantity and quality of the underlying asset at a specific time and place in the future.

Futures trading: The trading activity of buying and selling a certain futures contract in a centralized manner on a futures exchange.

2、 Transaction process terminology

Margin: Funds paid by futures traders according to prescribed standards, used for settlement and ensuring performance.
Opening a position: The trading behavior of starting to buy or sell futures contracts, also known as “establishing a trading position”.

Closing position: The act of a futures trader buying or selling futures contracts of the same variety, quantity, and delivery month as the futures contract they hold, but with the opposite trading direction, in order to close the futures transaction.Position: The position held by a trader after establishing a position.

Long position: Buyers of futures contracts expect prices to rise.

Short position: A seller of futures contracts who expects the price to fall.

3、 Transaction Status Terminology

Position holding: The total number of “open interest contracts” held by all investors on the futures contract in the market.
Trading volume: refers to the cumulative total trading volume from the beginning of the day to the current time, that is, the total trading volume of both long and short positions.

Total volume: The sum of trading volume in both domestic and foreign markets, or refers to the total number of transactions made on the current day of the contract.Current hand: The trading volume at that moment, which refers to the quantity of transactions made immediately.
Warehouse spread: refers to the difference between the current position and the position corresponding to yesterday’s closing price, which is the increase or decrease in the position.

4、 Trading instruction terminologyOpen more: The number of open positions bought is greater than the number of open positions sold, reflecting proactive buying and an increase in open positions.

Open: The number of open positions sold exceeds the number of open positions bought, reflecting proactive selling and an increase in open positions.

Double opening: Long positions are opened by buying, while existing short positions are opened by selling. Both trading parties open positions simultaneously and in equal quantities, resulting in an increase in open positions.

Double Flat: The original long position is closed by selling, the original short position is closed by buying, and both trading parties are closed at the same time with equal quantities, resulting in a decrease in the holding amount.

Multiple trades: Existing long positions are sold and closed, while new long positions are bought and opened, with unchanged open positions.

Short swap: The original short position is closed by buying, and the new short position is opened by selling, with the holding amount unchanged.

5、 Other related terms

Settlement: The fund settlement of the trading profit and loss status of both parties based on the settlement price announced by the futures exchange, usually the weighted average price of the daily transaction price.

Yesterday’s settlement price: The settlement price of the previous trading day.
External trading: also known as active buying, which refers to the cumulative trading volume of the selling price at the hanging price, representing the power of going long.

Internal trading: also known as active selling, which refers to the cumulative trading volume of buying at the hanging price, representing the power of short selling.

Basis: The difference between the spot market price and the futures market price of the same commodity at that time, usually calculated using the recent futures contract month as the basis.

Liquidation: The process in which the exchange or broker forces the liquidation of a position to reduce losses when the loss exceeds the account’s tolerance.

The above is a summary of the basic terms of foreign exchange futures, which are the basis for understanding and participating in foreign exchange futures trading. In practical operation, investors also need to have a deep understanding of the specific rules of each exchange, the characteristics of trading varieties, and market dynamics.