Is there a set number of futures contracts per product?

[JTrader]

Hi

this may sound like a daft question, and the answers probably simple, but I haven't got my head around it !

A PLC has a set number of shares in circulation. There may be 60 million shares valued at £4 each.

Futures contracts, like shares also trade on an exchange.

With CME, CBOT, LIFFE etc. - and their exchange based futures contract products - is there a maximum/set number of futures contracts in the market/game? or can the number of futures contracts increase to infinity - if the demand is there?

Cheers

jtrader.

 

[frugi]

JT,

There's not a finite pool of futures contracts circulating in the market, as there is shares, so theoretically there is no maximum number of open positions available. Availability, as it were, depends on people wanting to transact. If a buyer and seller meet, they form a new contract between themselves and that will increase the traded volume and possibly change open interest.

 

[JTrader]

frugi - If a buyer and seller meet, they form a new contract between themselves and that will increase the traded volume and possibly change open interest.

Thanks frugi

what does open interest mean?

 

[Tuffty]

Last year there was an example what can happen when the nos. of futures contacts exceeds the underlyings. Can't remember the exact details but some bright sparks realized they could make $ by demanding actual delivery of the underlyings when the futures expired. If the underlyings are in limited supply v. the nos. of futures there's a problem.

 

[JTrader]

Tuffty - Last year there was an example what can happen when the nos. of futures contacts exceeds the underlyings.

Hi Tuffty,

what do you mean by number of underlyings?

How many underlyings are there?

I thought that the only underlying is the one underlying cash market upon which the futures product is based?

Cheers

jtrader.

 

[JTrader]

Hi

i find it easier to think of the futures contracts and delivery of the underlying product when discussing something commodities like wheat or gold, where you could in principal take delivery of the physical commodity. Even with forex futures, you could take delivery of the actual currency in the form of a bundle of cash.

However, with equity futures, if you did take delivery of the emini ES sp500 contract for example at expiry, is there a tangible object that you could actually accept delivery of?

Thanks again.

 

[Directional]

Hi

However, with equity futures, if you did take delivery of the emini ES sp500 contract for example at expiry, is there a tangible object that you could actually accept delivery of?

Thanks again.

Incides are generally cash settled, ie: when the future expires, the contract is settled at the price of the cash index price, in cash. (emini = $50 x index price per point) usually this just entails settling the difference between the future at expiry and the cash. (ESH06 vs $INX.X for example)

 

[Tuffty]

jtrader, From my limited knowledge futures contracts were originally based on grains etc (i.e. physicals). It seems only in recent times (last 20yrs or so) has the appetite become greater for futures on non-deliverables like indecies, and more recently polution and weather (although I suppose you could deliver a number of share certificates equating an equity index).

 

[josbarr]

Since there are inherent limits in supply, there are position limits too.
Grains for example are 600 contracts