Expiration of contracts for shares and their fall. Expiration

Newcomers to trading find themselves in a new, unknown world with their own rules and laws. A huge amount of incomprehensible information, terms, models will make even scientists get confused. Any strategy in the market is to anticipate future or recurring events and capitalize on this. Today we'll talk about what futures expiration is and how you can increase your investments on this. The article will be useful not only for beginners, but also for experienced traders, regardless of the platform on which you trade, because the mechanism is the same everywhere.

Definition, terminology and timing

The word "expiration" is derived from English expiration- completion of a certain period / term. When applied to an exchange, it means the end of trading in a certain contract. Expiration of futures is divided into two types: calculated and staged. When using them, a specific date is selected for which all participants will need to fulfill their obligations. You can see it in the specification of any contract. For example, the expiration date for Mos futures. exchange for the most popular RTS instrument comes every quarter.

How expiration can affect trading

When the expiration date of the contract comes, price movements begin to make sharp jumps in the direction of both sellers and buyers. This is due to the fact that during this period there is a strong struggle between them. Several factors exert particular pressure on the price in such a period: the volume and ratio between stocks and the market for industrial instruments, the distribution of instruments among all participants and the influence of market makers. As a result of this data, a high volume, volatility is formed in the market, and the one who remains the winner will indicate the further direction of movement.

Why should a beginner know what futures expiration is?

For example, let's take the popular His contract changes 4 times a year, that is, on a quarterly basis. The calendar year starts with the March futures as the end date falls at the end of March. Each month and year are marked in terminals based on 3 data. First comes the designation RI (for RTS), then the indication of the month (H - March, M - June, U - September, Z - December) and ends with the number 7 (the last digit of the year 2017). As a result, one futures name (RIH7) already carries the basic information. It should be noted that several instruments are traded on the market at any time, since futures expiration is six months, but the active phase begins three months before the expiration date.

Surely you have a question: what is done with the contract after its termination? The exchange simply closes it at the current market price and transfers the profit or loss to the trader's account. Therefore, even if you yourself did not close your contract, there is nothing wrong with that, but it is still better to switch to a new contract in advance. You can do this yourself in the terminal settings.

Brent Oil Futures

Due to the great popularity of oil trading, we want to tell you about how the expiration of brent futures occurs, what it is and how you can make money on it. When trading this instrument, you must first of all take into account the factors that affect its value in the near future. This includes: the rate of inflation, the state of the fuel base for 5-10 years, the possible impact of new technologies and, of course, geopolitics. It should be noted that trading differs from trading in instruments on the following points:

1) no need to think about how to transport and where to store;

2) the contract will be resold before the expiration time;

3) you can earn or lose only on the price difference.

If you nevertheless decide to trade this instrument, then you need to study in more detail all its elements and the factors influencing it.

Good day to all!

Today I will try to answer the question that I am often asked: “what happens to an open position during expiration (switching to a new futures contract)”?

So, let's begin.

Expiration of futures contracts

First, I want to point out, do not forget to keep track of the life of the futures contract. You can follow it in the “current trading” plate in QUIK (see the screen below) or on the Moscow stock exchange website. Most contracts change every 3 months. But some have a shorter lifespan. For example, Brent oil.

Even if you forgot to close the position before expiration, it's okay, the broker will recalculate the variation margin into profit. For example, if you bought Gazprom at a price of 13,700 and at the time of the expiration of the contract the price of the instrument was 13,850 and your profit was 150 rubles, then it will be automatically credited to your account.

There is also a small point worth paying attention to and with which many are confused. If we look at our table in QUIK, we will see that there are settlement futures and delivery ones. Most of the instruments are calculated.

In this topic, I will not focus on what settlement and deliverable futures are, I will tell you about this in a separate article. It is believed that for deliverable futures, after expiration, you are credited the corresponding number of shares to a spot account. But in fact, the situation is similar with a settlement futures and you will simply be credited with paper profits to your account. I personally verified this information.

And finally, one small recommendation. Do not forget to change contracts in time, especially if you are trading intraday. I do this the day before switching to a new contract. Usually, on the last day, the volatility on the instrument drops very much, and if you forget to change the instrument, then simply pay the broker an extra commission or find yourself in a small minus, since the instrument practically does not move. Therefore, update your tools in time. This happened to me when I was just starting to trade on the stock exchange. Sometimes he forgot to change the contract and all day stared at an almost dead schedule and did not understand what was happening 🙂 In general, be careful. All profit. Bye!

Respectfully yours, Stanislav Stanishevsky.

(from the English expiration - end, end, expiration) - the process of completing the circulation of futures contracts (futures and options) on the exchange. Expiration is actually the date when obligations for futures and options are fulfilled (that is, the asset was delivered and / or mutual settlements between the parties to the transaction).

Derivatives contracts traded on the exchange have standardized expiry dates.

Expiration of an RTS Index futures

At the moment of expiration, there is a struggle for their income between sellers and buyers of options. And there are many questions in this struggle:

1) the volume of the derivatives market and its proportionality to the stock market
2) distribution of assets of market participants
3) pressure from market makers

Therefore, market volatility increases during the expiration period, and the final result depends on which group won.
When expiration falls at a minimum

Each futures has a lifetime after which it ceases to exist. This process is called futures expiration. On this day, mutual settlements are made between the participants in the transactions:

• If the futures are deliverable, the underlying asset underlying a particular futures contract is delivered
• If we are talking about a settlement futures, then based on price fluctuations, only monetary settlements occur if the transactions are not closed in advance.

Expiration date

You can find out the expiration date of each individual futures in its specification, which contains all the important information on the contract. Basically, the expiration of futures contracts on the Russian stock exchange, with some exceptions, occurs four times a year in the middle of the month, namely:

• March 15th;
• June 15;
• September 15th;
• December 15;

If this day falls on a weekend, then expiration is performed on the next working day at the exchange. A striking example of an exception is the expiration of brent oil futures, which also occurs monthly on the 15th.

Thus, at the end of the year, starting from mid-December, traders begin to actively work with the so-called March futures, in March they massively switch to June and so on.

On average, each futures contract lives for about six months (for example, the March one is available for work in September), but it is the last three months that it has the most active, and before that, if the movements take place along it, they are too sluggish.

Most often, already a few days before expiration, exchange traders begin to close their positions on current futures contracts and switch to new ones. The closer the X hour, the lower the liquidity of futures, moreover, volatility can increase sharply and instead of the planned profit, you can also find yourself in losses.

If you lost time and did not exit your transactions on your own, the exchange will close them forcibly at a market price that is not always favorable for you.

Codes and their designations

It is not difficult to find out how long the futures contract you are interested in is left to live, just look at its code - full or short. The complete one will naturally be more understandable for a beginner, but in the short one you need to understand each character. Let's take an example of a futures on ordinary shares of Sberbank of Russia.

• The full SBRF-06.15 code will show us that the futures can be traded until September 2015 and must be executed on September 15
• The short one - SRU5 - shows the same. SR - futures on Sberbank shares, U - this is the month September, 5 - year.

If you work on the exchange for a long time, all these designations are quickly remembered. At the initial stage, you can check the signs.

The creation of futures contracts has made a huge revolution in the exchange. The original purpose of their creation was to provide a completely new financial relationship between the seller and the buyer.
Thanks to a futures contract, entrepreneurs could agree on future deliveries of products at a predetermined price by a certain date.

Such an innovation on the commodity exchange made it possible to make relations between the parties transparent, and the exchange at the same time acted as the guarantor of the execution of the contract.

Naturally, over time and the active development of the exchange, in parallel with the deliverable futures (which are still present on the commodity exchange), the so-called settlement futures appeared.

The main purpose of which is speculative trading, as well as hedging risks on the underlying asset. However, the only thing that these two different types of contracts still have in common is the expiration of futures.

Expiration of a futures is the date on which the contract and the obligations assumed by the parties are executed.

If we talk about a deliverable futures on a commodity exchange, it is on this day that the goods are delivered and paid for at a pre-agreed price.

It should be understood that the expiration of a settlement futures, namely a speculative one, is something different from a commodity one, namely, on a certain day, trading on an asset stops and the asset itself is removed from the market.

That is why, in order not to fall under the automatic closing of deals at a price unfavorable for the trader, it is necessary to clearly know the end date of the contract you have chosen.

Determining the expiration time of a futures

Expiration of futures contracts, as a rule, occurs four times a year, namely quarterly.

However, it should be understood that on different exchanges and depending on the futures itself, the expiration may differ slightly.

That is why it is very important to learn how to read this information directly from the name of a futures contract.

As an example, we will consider the September Brent oil futures contract, which can be traded at InstaForex.

So, when adding this asset, you can see this name # XBZU7. The first three letters #XBZ are responsible for the underlying asset, and in our case, Brent oil, while the other two letters indicate the month and year of the futures expiration.

So, the penultimate letter F indicates the month January, G - February, H - March, J - April, K - May, M - June, N - July, Q - August, U - September, V - October, X - November, Z is December.

Thus, it should be understood that the first letters of the names of the months in English were taken to mark the months in the futures contract. The last figure indicates the year of the contract, namely if 6 is 2016, 7 is 2017 and so on.

Impact of futures expiration on price movement

The movement of the price of a futures, as a derivative asset, is almost always identical to the movement of the price of an underlying asset, namely a stock, an index, or any other security.

It is this feature of futures that traders use to hedge the risks that arise while trading with the underlying asset.

However, in the last weeks before expiration, the movement of the price of the futures and the underlying asset begins to diverge, and the volatility itself slows down very much.

This is due to the fact that as the expiration is approaching, traders begin to fix their positions at a more favorable price and move to the next futures for the same asset, but with a different expiration time.

This factor must be taken into account in your trading, since strategies based on spread and correlation at this moment can give huge losses.

In conclusion, it should be noted that any futures trader simply must know the expiration time of the contract, since market activity directly depends on it.

It is also worth understanding that at the time of expiration, the deal will be automatically closed by the broker at the market price, therefore, not taking into account this moment can lead to unexpected losses.