【正文】 nsure that no one person can control the market price for a particular modity. 4 Conclusions Buying and selling in the futures market can seem risky and plicated. As we39。s close. Each day the silver ounce could increase or decrease by $ until an equilibrium price is found. Because trading shuts down if prices reach their daily limits, there may be occasions when it is not possible to liquidate an existing futures position at will. The exchange can revise this price limit if it feels it39。s close and the results remain the upper and lower price boundary for the day. Say that the price change limit on silver per ounce is $. Yesterday, the price per ounce closed at $5. Today39。 a profit of 162%! On the other hand, if the index declined 5%, it would result in a moary loss of $16,250 a huge amount pared to the initial margin deposit made to obtain the contract. This means you still have to pay $6,250 out of your pocket to cover your losses. The fact that a small change of 5% to the index could result in such a large profit or loss to the investor (sometimes even more than the initial investment made) is the risky arithmetic of leverage. Consequently, while the value of a modity or a financial instrument may not exhibit very much price volatility, the same percentage gains and losses are much more dramatic in futures contracts due to low margins and high leverage. Pricing and Limits As we mentioned before, contracts in the futures market are a result of petitive price discovery. Prices are quoted as they would be in the cash market: in dollars and cents or per unit (gold ounces, bushels, barrels, index points, percentages and so on). Prices on futures contracts, however, have a minimum amount that they can move. These minimums are established by the futures exchanges and are known as “ ticks.” For example, the minimum sum that a bushel of grain can move upwards or downwards in a day is a quarter of one . cent. For futures investors, it39。s and tomorrows estimated amount of supply and demand. Futures market prices depend on a continuous flow of information from around the world and thus require a high amount of transparency. Factors such as weather, war, debt default, refugee displacement, land reclamation and deforestation can all have a major effect on supply and demand and, as a result, the present and future price of a modity. This kind of information and the way people absorb it constantly changes the price of a modity. This process is known as price discovery. Risk Reduction Futures markets are also a place for people to reduce risk when making purchases. Risks are reduced because the price is preset, therefore letting participants know how much they will need to buy or sell. This helps reduce the ultimate cost to the retail buyer because with less risk there is less of a chance that manufacturers will jack up prices to make up for profit losses in the cash market. 3 Characteristics In the futures market, margin has a definition distinct from its definition in the stock market, where margin is the use of borrowed money to purchase securities. In the futures market, margin refers to the initial deposit of good faith made into an account in order to enter into a futures contract. This margin is referred to as good faith because it is this money that is used to debit any daytoday losses. When you open a futures contract, the futures exchange will state a minimum amount of money that you must deposit into your account. This original deposit of money is called the initial margin. When your contract is liquidated, you will be refunded the initial margin plus or minus any gains or losses that occur over the span of the futures contract. In other words, the amount in your margin account changes daily as the market fluctuates in relation to your futures contract. The minimumlevel margin is determined by the futures exchange and is usually 5% to 10% of the futures contract. These predetermined initial margin amounts are continuously under review: at times of high market volatility, initial margin requirements can be raised. The initial margin is the minimum amount required to enter into a new futures contract, but the maintenance margin is the lowest amount an account can reach before needing to be replenished. For example, if your margin account drops to a certain level because of a series of daily losses, brokers are required to make a margin call and request that you make an additional deposit into your account to bring the margin back up to the initial amount. Let39。s loss in the futures contract is offset by the higher selling price in the cash market this is referred to as hedging. Now that you see that a futures contract is really more like a financial position, you can also see that the two parties in the wheat futures contract