Futures
Chapters in this video
- 0:00 Legally binding obligation: both parties, not just the seller
- 1:20 Standardized contracts and the clearinghouse role
- 2:46 Four categories of futures underlyables
- 3:11 Futures margin is a deposit, not a loan
- 4:04 The margin call trap: restoring to initial margin
- 4:52 Mark-to-market and daily settlement mechanics
- 5:35 Rapid-fire exam recap
What this video covers
- Why both parties are legally obligated in a futures contract, and how that differs from options where only the seller is obligated
- What standardization means for futures: contract size, delivery date, and quality terms are all set by the exchange
- How the clearinghouse becomes the counterparty to both sides and why counterparty risk is virtually eliminated
- The four categories of underlying assets tested on the Series 66: commodities, financial instruments, stock indexes, and currencies
- Why futures margin is a good-faith performance deposit, not a loan, and why both buyer and seller must post it
- The margin call sequence: initial margin, maintenance margin floor, and variation margin required to restore to the initial margin level
- What mark-to-market means and why daily settlement prevents losses from accumulating until expiration
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 66 course also includes adaptive practice questions and spaced-repetition flashcards.