Risk
Risk
Risk sets out, plainly, the ways people and institutions lose money in futures: leverage that turns small moves into account-wiping losses, gaps and limit moves that stop you getting out, margin hikes at the worst moment, and the famous failures from Barings to the day oil went negative. It also explains the clearing house, the reason exchange-traded futures rarely default, and the limits of that protection.
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Futures Risks Explained Honestly
The real risks of futures: leverage, losses larger than your deposit, overnight gaps, thin markets, margin increases, delivery and broker risk, with worked arithmetic on real contracts.
Read this first →More in Risk
Why Oil Prices Went Negative on April 20, 2020
How the May 2020 WTI crude oil futures contract settled at -$37.63 a barrel: storage at Cushing, physical delivery, the settlement mechanics, who lost money, and what the CFTC staff report found.
Read the explainer →Famous Futures Blowups: Barings, Metallgesellschaft, Amaranth and MF Global
What really happened at Barings in 1995, Metallgesellschaft in 1993, Amaranth in 2006 and MF Global in 2011, based on official reports, with the arithmetic and the lesson each one teaches.
Read the explainer →How Futures Clearing Houses Work: Novation, Margin and the Default Waterfall
How a clearing house becomes buyer to every seller, collects margin twice a day, and absorbs a member's default through the waterfall, with real cases from Lehman in 2008 and Nasdaq Clearing in 2018.
Read the explainer →Limit Moves and Circuit Breakers in Futures Markets
How daily price limits, equity index futures limits and the 7%, 13% and 20% market-wide circuit breakers work, with the March 2020 halts and a worked example of being limit-locked.
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