Futures risk education

Risk management of futures exchanges

As the front-line management institution of futures exchanges, futures exchanges have a full understanding of market risks. In the nearly 100 years of development of futures trading, futures exchanges have formed a set of effective risk management systems. These systems are mainly the margin system; Price limit system; Position limit system; Large household reporting system and compulsory position closing system.

1、 Margin system

The margin system is that in the futures trading, each trader must pay a small amount of funds according to a certain proportion of the value of the futures contract (usually 5% - 10%) as the financial guarantee for the performance of the futures contract, and determine whether to add funds according to the changes in futures prices, so as to keep the margin level above the corresponding level. This ensures the integrity of every trader involved in futures trading to perform the contract.

2、 Price limit system

The price limit system refers to that the trading price of a futures contract in a trading day shall not be higher or lower than the specified range of price rises and falls. The quotation beyond this range will be deemed invalid and cannot be concluded. This is an important risk management system matched with the margin system, which at a minimum ensures that every trader's margin can withstand the trading risk of a day. Through the daily debt free settlement system (that is, traders who lose money in the trading of the day must make up the margin before the opening of the next day), the trading risk of futures trading is theoretically controlled to a minimum.

3、 Position limit system

The position limit system refers to the system that the futures exchange restricts the number of positions held by members and customers in order to prevent manipulation of market prices and excessive concentration of futures market risks on a few investors. If the limit is exceeded, the Exchange may forcibly close the position or increase the margin ratio according to regulations. This is an important measure for the Exchange to control the degree of market risk and prevent risk expansion.

4、 Large household reporting system

The large account reporting system means that when the speculative position of a member or client in a certain type of position contract reaches more than 80% (including the original amount) of the speculative position limit specified by the Exchange, the member or client (through the brokerage member) shall report its capital situation, position, etc. to the Exchange. This is an important system closely related to the position limit system to prevent large investors from manipulating market prices and controlling market risks.

5、 Compulsory position closing system

The system of compulsory position closing refers to the system of compulsory position closing implemented by the Exchange or futures brokerage companies to prevent further expansion of risks when the trading margin of members or clients is insufficient and is not replenished within the specified time, or when the number of positions held by members or clients exceeds the specified limit. This is an important system for exchanges or futures brokerage companies to control market risks and resolve market risks.

In addition, the systems related to risk control include the daily debt free settlement system and risk reserve system mentioned above.