Future on a Bond

A future on a bond is a type of futures contract whose underlying asset is a bond, whether issued by a government (sovereign) or by a corporation (corporate)..

GLOSSARY

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1/1/20242 min read

A future on a bond is a type of futures contract whose underlying asset is a bond, whether issued by a government (sovereign) or by a corporation (corporate). This type of contract allows investors to speculate on future variations in the bond's price, without the need to physically own it. The trading of these contracts takes place in organized markets or stock exchanges, offering participants a standardized and regulated way to commit to buying or selling the bond at a predetermined price on a future date.

manual trading vs algorihtmic trading
manual trading vs algorihtmic trading
chart trading
chart trading

Main features of a future on a bond:

  • Underlying: Specifically, the contract is linked to a public debt bond with detailed characteristics, such as an annual coupon of 6.5% and a nominal value of 10,000 euros. Previously, these bonds could have different coupons, such as 9%.

  • Margin per contract: The amount required as collateral to open a position in this futures contract is 10,650 euros.

  • Maturities: The contracts have quarterly maturity dates, in the months of March, June, September, and December.

  • Expiration date: It is set on the third Wednesday of the expiration month.

  • Quotation method: The contract's quotation is expressed as a percentage of the bond's nominal value.

  • Minimum fluctuation (Tick): The minimum price change of the contract is specified in basis points, representing a fixed amount in euros.

  • Trading hours: The market for these contracts is open from 9:00 a.m. to 5:15 p.m.

Importance of futures on bonds

Although the underlying asset is a bond, the process of trading and analysis for futures on bonds is similar to that of other assets such as stocks or indices. The price dynamics are governed by supply and demand, as well as expectations about economic factors such as interest rates or exchange rates. Crucial for investors is the ability to correctly predict price movements to buy low and sell high, or vice versa, depending on their investment strategy. The specificity of the bond as an underlying asset does not complicate the essence of futures trading, which focuses on speculation and risk management, being accessible even to those who do not have an in-depth knowledge of the underlying asset.

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a man in a headset is sitting at a computer
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wall st

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