#Futures trading manual#

Risk assessment recordkeeping requirements for futures commission merchants. Maintenance of minimum financial requirements by futures commission merchants and introducing brokers. Risk Management Program for futures commission merchants. Minimum Financial and Related Reporting RequirementsДЇinancial reports of futures commission merchants and introducing brokers. Requests for interpretation of swaps, security-based swaps, and mixed swaps. Measures like adequate staff training, supervision, internal controls, and documentation of standard operating procedures and segregation of tasks are essential for running a brokerage house as well as for reducing instances and impact of operational risks.General Regulations Under the Commodity Exchange ActД®lectronic signatures, acknowledgments and verifications.Д«ooks and records requirements for security-based swap agreements.

#Futures trading manual#

Errors due to manual mistakes by staff are a major area of risk for all brokers. Operational risk is a major source of losses for brokers as well as investor complaints. Brokers need to ensure that they allow only those clients access to trade deliverable contracts till maturity who have the capacity and ability to make good on delivery obligations. Similarly, the risk of non-delivery is substantial for physically delivered contracts. Delayed response to client delinquency can result in the creating losses for brokers if not default. Managing risks of client non-payment is an internal broker function that should be done in real-time. In cases where clients fail to pay margin calls, brokers need to be proactive and take steps to close out positions.

However, non-payment of margin calls by clients poses a serious risk for brokers. Use of electronic systems with online banking has reduced the risks of failed daily settlements. Brokers are obligated to fulfill all margin calls. Daily settlement takes the form of automatic debits and credits between accounts with any shortfalls being recovered through margin calls. Even if a trade is executed, there is always a risk that it can become difficult or costly to exit from positions in illiquid contracts.ДЄll executed trades need to be settled and closed at some point. There may not be enough opposite interest in the market at the right price to initiate a trade.

Even if a trader arrives at a strong trading view, he may not be able to execute the strategy due to lack of liquidity. Level of liquidity in a contract can impact the decision to trade or not.

Liquidity risk is an important factor in trading. Normally, rise in interest rates during the investment period may result in reduced prices of the held securities.

The risk that an investment's value will change due to a change in the absolute level of interest rates. Clearly, this represents great amount of leverage which is defined as the ability to take large exposures with little upfront cost. In other words, a trader can take a position equivalent to Rs. For example, if the initial margin for gold is 2.5%, it implied 40 times leverage. This is the minimum level of margins required by the exchange and provides maximum leverage. Exchange sets margins at levels which are deemed appropriate for managing risks at clearinghouse level. Lack of respect for leverage and the risks associated with it is often the most common cause for losses in futures trading. One of the chief risks associated with futures trading comes from the inherent feature of leverage. Following are the risks associated with trading futures contracts: Futures trading is inherently risky and requires that participants, especially brokers, are not only familiar will all the risks but also possess the skills to manage those risks.