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What are futures? - MoneyWeek Investment Tutorials

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What are futures? Tim Bennett explains the key features and basic principles of futures, which, alongside swaps, options and covered warrants, make up the derivatives market. Related links… - What are derivatives? https://www.youtube.com/watch?v=Wjlw7ZpZVK4 - What are options and covered warrants? https://www.youtube.com/watch?v=3196NpHDyec - What are futures? https://www.youtube.com/watch?v=nwR5b6E0Xo4 - What is a swap? https://www.youtube.com/watch?v=uVq384nqWqg - Why you should avoid structured products https://www.youtube.com/watch?v=Umx5ShOz2oU MoneyWeek videos are designed to help you become a better investor, and to give you a better understanding of the markets. They’re aimed at both beginners and more experienced investors. In all our videos we explain things in an easy-to-understand way. Some videos are about important ideas and concepts. Others are about investment stories and themes in the news. The emphasis is on clarity and brevity. We don’t want to waste your time with a 20-minute video that could easily be so much shorter. We’ve already made over 200 financial videos and we add more each week. You can see the full archive here at MoneyWeek videos.
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Text Comments (461)
Otman Zayer (1 day ago)
So what your saying is that the contract states that someone has to sell another person something. Because you made it seem as if the contract explicitly says that the producer has to sell to the manufacturer. And if in fact that was the case, then the second contract would not have been honored if Audi sells to the Aluminum producer given the terms.
jon smith (17 days ago)
Why can't they just rip up the original contract, if both parties agree to this and the contract has get out clause?
mars (25 days ago)
Why isn’t the producer out $1000?
Max Smith (26 days ago)
How do spot contacts work?
Rolando Thomas (26 days ago)
Understood 100%
Love Animals-01 (29 days ago)
WORST video. Learned nothing at all.
saruman thewhite (1 month ago)
What of the gold doesn't even exist!!
E M (1 month ago)
Very nice accent. Enjoyed listening to you
Mou San (1 month ago)
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Mohammed Ibrahim (2 months ago)
3 T 3000, Then 2T for 2500 I believe you got the example wrong there?
Damien Zhixin (2 months ago)
Thank you so much! You succinctly explained in 20 mins what my lecture notes takes hours of reading to understand..
yuchen xie (2 months ago)
the sound from the marker drove me crazy
King of the white board
AniishAu (2 months ago)
It is NOT a casino. Speculators are just getting ready to colonise the next 20 planets.
some weird guy (2 months ago)
What if b doesn't want to buy the contract back, but actually goes ahead and delivers? this screws A or C as now they have to store the commodity, am i missing something?
Philippe Deleersnyder (19 days ago)
focus on learning Futures trade and company stock bio data well before investment. enter Futures market if you can, because there is a high probability setup, a goal you must get. I find it more favorable when I studied more with *IQD momentum strategy invented by Lukasz Wilhelm* . Trading is long journey, it takes time and patience but more favorable at the end of it. if you want to become a successful trader you need research and utilize every good information.
alvachan88 (2 months ago)
when you close a trade and make a profit, the exchange would pay you first. A would get paid in cash by the exchange when he closed his trade. exchanges are financial institutions too that carry a lot of cash on their balance sheet to facilitate payout before getting payment from the losers. of course if B refuses to close his trade and somehow gets hold of $4 of the underlying commodity and the exchange forces a clear out, then the exchange would have to buy $4 of said commodity from B. C will still get $2 in cash as the exchange is the party that can force a clear out so C has no obligation to buy the commodity if C closes his trade before the clear out. if you consider the cash flow of all players to ever participate in an exchange, it's a negative sum game (zero sum - all commissions paid).
saruman thewhite (3 months ago)
isn't this the behaviour that caused the financial crisis
Predrag Perisic (4 months ago)
It woild be nice to put encyclopedic definition of the title word 'futures' in the description at least.
Pranjal Saxena (4 months ago)
After the first month when the MP has gone up to $3000 why would I ever agree as a manufacturer to novate the contract even if I believed that it was just a price spike?
prashanth kumar (4 months ago)
On what basis a future contract is priced like is it on the actual price of the underlying asset or any other components??
Dave Lewis (4 months ago)
Get Acoustic Foam for your walls! 😁
kishore buddha raju (5 months ago)
excellent information and the manner of its explanation....
lombardo141 (5 months ago)
This like musical chairs. The very last guy in the world in theory would literally have to deliver actual metal.😂😂
Amazing Max Stuff (5 months ago)
Excellent video, thank you! I also love extremely the English accent, it's super cool. What I don't understand about this is: why the shorter that thinks the price going to drop, doesn't simply sell the contract at the current price? If he thinks the price is going to go below 10$, why not sell it now for 10$ instead of waiting some months?
love koala (5 months ago)
Thank you Mr Tim, you explain the concept better than my lecturer :)
RightClic God (5 months ago)
A bought Bitcoin for $10 C comes along and decides to buy at $12300 thinking it will keep rising. C shoots himself in the head and never delivers.
Kosh 963 (6 months ago)
Sir, where would you like your 20,000 head-of-cattle.?. 🐂 😂 😂
He said 'Chaps' not 'Japs' :)
Drukpa Kunley (6 months ago)
You Explanations are easy to Understand.... by chance... here I Am watching this same VIDEO AGAIN... .. And I Have learn ... More about how fluid the market is... and How it takes someONE like you to help the STUDENT connect all the DOTS.... I Thank you ... GREAT FULL I AM
Sephs Vi (7 months ago)
So nasdaq futures is down 1.5%. Does that mean people are betting that the nasdaq will be down tomorrow?
de risers (7 months ago)
Blended Model Strategy is one best you can use in trading futures, i tried it for about two weeks and it was highly profitable , I do make profit in any 1 hour of trading per day. Someone can also try to learn to use this method ... is most profitable mostly to beginners in FX market. this strategy can help you if you learn how to apply it perfectly. find it on google if you wish, the method is created by Dmitry Vladislav a Market analyst.
Pavel Kondratyuk (7 months ago)
So NASDAQ futures are money settled it's an agreement to buy or sell a set of NASDAQ. In general they all just move together
yash choudhary1 (7 months ago)
Amazing video, increased my understanding.
1stayreckless1 (7 months ago)
The way he says aluminum
Nicholas Ray Casilli (7 months ago)
Brilliant. What amazes me the most is that what this gentleman says is perfectly understandable even by an Italian guy.
Phencyclidine (7 months ago)
excellent video.
Dia Jasin (8 months ago)
crazycool1128 (8 months ago)
1. how then is the market price (MP) decided? 2. What happens if a contract expires and the investor hasn't closed its position?
Klippi NRW (6 months ago)
1. The current market price depends on the current supply and demand. The prices in the video are all future prices. 2. As a rule, I have to buy (sell) the underlying, meat for example, from the other if I went the Future Long (short) before. In many brokers, however, where small speculators play, the physical delivery of the goods is not possible. The broker then always closes the contract himself (see also the term "First Notice day")
Mani Babai (8 months ago)
Perfect explanation with a very interesting Example at the end ! thank you so much !
david alford (8 months ago)
superb teacher. thank you sir.
Firoz Hasan Siddiquee (8 months ago)
Forwards and futures can't be explained any more simply in such a short time. Thanks a ton for the video.
J BULLIONAIRE (4 months ago)
A ton of aluminium? $2500 for you my friend
Sean Harrison (8 months ago)
Not gambling
Joanna Mrozek (9 months ago)
Great videos. Love the way you explain compkex financial concepts with real life examples.
AndriarSmith (9 months ago)
LOL, this is genius! :)
Abhilash Kumar (9 months ago)
Great Explanation Loved the cattle head example.. (chuckles)
Danny Phan (9 months ago)
I took a Finance class and your video helps me understand the Future contract much better. Thank you, great tutorial
Daniel Peralta (9 months ago)
You just answered every and each of my doubts about that matter. What couldn’t be solved by other few videos! thank you so much!
Hieu Land (10 months ago)
nice! it's so clearly!!
link2y (10 months ago)
excellent. Nicely explained.
Peter (10 months ago)
The way you breakdown material is amazing. Thanks for breaking it down
Joe Petrick (10 months ago)
What the hell is alimunium
Kai (10 months ago)
serious question, what happens if a person actually DOES want delivery of the asset? is the seller forced to accommodate that somehow?
Pavel Kondratyuk (7 months ago)
You use exchanges that prevent that from happening
Dott. Fuoriclasse (11 months ago)
I have a question for you. Why are you so the fucking number one!? The only one able to explain futures mechanism on yt
AllForOne M (11 months ago)
wow great job
George Mwangi (1 year ago)
Thank you so much for this tutorial, this was much simpler and way easy to understand
Nikhil Shingade (1 year ago)
Hi Tim, Your channel is simply brilliant. I have learned a lot from these, thanks a ton. Please keep it up. I have a question which is haunting me for days. As you have mentioned the Futures price in a particular contract is fixed for the duration of the contract. Also these is a statement, that the futures price converges to the spot price as the delivery date approaches. These two statements are contradictory to me as far as the futures price is concerned. Can you please elaborate this and help me understand what I am missing here.
Klippi NRW (6 months ago)
No, not the future price is fixed, but the agreed future price. I do not see the other participant. If the October Future is currently at $ 100 and I'm going futures long, the price is 110 tomorrow, I've gained 10%. The agreed price is then still $ 100. In fact, when we have October and the future expires, it has approached the spot market.
Luka (1 year ago)
I dont get how futures are different to options?
Bobby Morrie (1 year ago)
Very helpful explanation, thanks so much!!!
drno (1 year ago)
This is for people who do not want to do REAL work...why reward lazy people
ECURB511 (6 months ago)
The market has no will of its own. It automatically rewards anything that is useful and scarce.
awr__00 (10 months ago)
Oh, you're one of those people. Why even come here and watch the video? to complain? Those LAZY people obviously got the money to trade futures from working for it. FYI, millionaires and billionaires with businesses who AREN'T lazy trade futures you imbecile....
drno (1 year ago)
More scams
Manzar Saqlain (1 year ago)
Really helpful. Thanks alot !
ken masters (1 year ago)
that helped
dhruv shedshyal (1 year ago)
Thank you Tim!all these days i had mistaken Forwards as Futures. If futures are not traded OTC , does it have a index ?
selvam gopal (1 year ago)
I am from India. I can not understand because your slang irritates me.
Hudson Caceres (1 year ago)
Sucks to suck my friend
Debbie Overman (1 year ago)
Brilliantly done, I love the phrase "and when you buying a head of cattle, you aren't just buying the head you are buying the whole beast." I laughed and laughed...I live in cattle country.
Anirudh B (1 year ago)
Beautifully explained!..kudos!
Eniah Baya (1 year ago)
How do futures contracts affect exchange rates?
sterdel1982 (1 year ago)
the best teacher.so easy to understand
Danny Phan (1 year ago)
Very helpful video, thank you so much. I have been trying to look for a detail explanation for so long
Sri nidi (1 year ago)
Navya Saini (1 year ago)
whats the point if no one needs the commodity?
reddiamondxiv (1 year ago)
We need some new stuff Tim. Lol
reddiamondxiv (1 year ago)
Makes it simple and easy to absorb. Wish their were more recent videos. 👍🏽
reddiamondxiv (1 year ago)
I love his explanation. Very detailed and has visuals.
Israel T. (1 year ago)
Nice. Silver will be delivered!!
Xtra Miles (1 year ago)
Great video and very understandable with the A, B and C illustration.
GodricThe (1 year ago)
Did not understand first example, but second one worked as a charm.
blacksupreme777 (1 year ago)
Thank you
canada painter (1 year ago)
CORRECTION; Please tell me something I am a little confused about.. 0 = where the futures market is. I sell an Calls Option at 4 for $500.Two weeks later the market is at 3 ( the Buy options value is $700)...if the Buyer decide to get out of his Calls position before   market reaches  4... what will I lose? and what will I gain?
canada painter (1 year ago)
Please tell me something I am a little confused about.. 0 = where the futures market is. I sell an Option at 4 for $500.Two weeks later the market is at 3 ( the Buy options value is $700)...if the Buyer decide to get out of his Calls position before   market reaches  4... what will I lose? and what will I gain?
Leo Castro (1 year ago)
great video!! I understand futures much better now!
KillYourTV9000 (1 year ago)
Thank you for the helpful video. The end also cleared my question about what happens in the delivery day.
Sasha M (1 year ago)
The eureka moment came when you swaped names of producer and manufacturer to trader a and b. It finaly clicked in my brain. Awesome. Thanks.
AS (1 year ago)
You are a legend!
Greco Conduris (1 year ago)
Does the futures themselves have an impact on the commodity price? Like a feedback loop?
animeonperseest (1 year ago)
oh yeah, btc gonna go down
Timothy Spatz (1 year ago)
Damn, man. The Noise floor in that room is ridiculously high. Its hard to listen to you. Video could have used a little audio cleaning before uploading.
Eric ong (1 year ago)
good explanation....love to watch more video ..thanks a lot
rohit sharma (1 year ago)
loved it "the way you explained"
NutHouseProductionz (1 year ago)
Dec 18, 2017, Bitcoin Futures CME.
b.cage (1 year ago)
If the seller had to pick up a ton for 3000$ and sell it for 2500$, hes - 500$, but then you say he buys back.the contract for 3000$, which means that he would be down another 500$, so all together it would be 1000$ he is down, not 500$.
Steve Chi (1 year ago)
This is another really good tutorial: https://www.youtube.com/watch?v=P9PVzmHxzYo
Manu De Backer (1 year ago)
Modern man UK (1 year ago)
Great video
Jordan Victoire (1 year ago)
Delsin Rowe (1 year ago)
Thank you also explained the basic of trading in the stock market ect. futures
Delsin Rowe (1 year ago)
Thank you so much this video is very detailed and thorough!!
Michael Gotiashvili (1 year ago)
#1 advantage of these videos is that the host is not some Indus guy with a terrible pronunciation and it's a pleasure to listen to him!
Dawid Dudziak (1 year ago)
thx so much
Nicholas Carrigan (1 year ago)
Is futures trading only done for commodities? or can the same principles be applied to other securities as well such as Bonds and Equities? Great video! Thank you.
Shannon (2 years ago)
Lol at the cattle Thing
KeninBoulder (2 years ago)
The guy doing the video is charming. But why would you use a product that nobody can relate to in your example. It just adds a layer of complication to a subject we already do not understand. And if the producer is going to walk away $500 down why would he then buy the $3000 contract when he could just sell contract 1 and be $500 down. And what about the Market Maker? The ABC example would have been a perfect time to introduce the concept of the Market Maker. Does C not represent the Market Maker?
Really helpful! Thanks!

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