Chapter 2: Basic Features of Forward Agreements and Futures Contracts

In this section

• A Brief Overview of Forward-Based Derivatives
  Explore the foundations of forward-based derivatives, from basic definitions and key participants to credit risk management and Canadian regulatory frameworks.
• A History of Forwards
  Discover the ancient roots of forward contracts, their evolution in Canadian markets, and how they paved the way for today's global derivatives marketplace.
• What Is a Forward Agreement?
  Explore how Forward Agreements function as customizable Over-the-Counter derivatives, their uses in hedging and speculation, and the critical risks and regulatory considerations.
• What Is a Futures Contract?
  Discover how futures contracts function as standardized, exchange-traded agreements, backed by a clearinghouse and marked-to-market daily, to manage risk and speculation across commodities, financial instruments, and more.
• Organized Futures Markets
  Explore how centralized exchanges function, their key features, clearinghouse processes, and the regulatory oversight by CIRO in Canadian derivative markets.
• Buying and Selling a Futures Contract
  Discover how to set up a futures trading account, place orders, understand margin and leverage, and manage daily mark-to-market processes under CIRO guidelines in Canada.
• Cash Settlement
  Cash settlement in futures, focusing on net payment processes, final settlement procedures, and regulatory oversight in Canadian markets.
• Margin Requirements and Marking-to-Market
  A comprehensive exploration of how margin requirements and daily marking-to-market protect market participants and maintain integrity in futures trading.
• Futures Trading and Leverage
  Explore how leverage in futures trading magnifies both gains and losses, learn practical risk management strategies, and understand CIRO’s regulatory guidelines for responsible margin usage in Canadian markets.
• Reading a Futures Quotation Page
  Discover how to interpret live and delayed futures quotes, understand contract month labels, and leverage settlement price and volume data for informed trading on Canadian and global markets.
• Contract Size and the Value of the Underlying Interest
  Explore how standardized futures contract sizes impact notional value, price risk, and margin requirements. Learn how to choose the right contract size, interpret potential gains/losses, and apply practical strategies in Canadian and global markets.
• CIRO Oversight and Margin Guidelines for Futures
  Learn how CIRO sets and enforces margin rules, conducts audits, and ensures compliant futures trading in Canada’s regulated environment.
• Key Global Futures Exchanges (Comparison to Bourse de Montréal)
  Explore major global futures exchanges, their core focuses, and how the Bourse de Montréal compares in terms of products, liquidity, and regulatory structures.
• Electronic Order Routing and Market Data Feeds
  Explore how digital platforms for order routing and real-time data feeds shape futures trading, covering key technologies, regulatory requirements, and best practices for Canadian (and global) derivative markets.