Overview

This eCourse consists of two modules. Module 1 shows how a 'fair', but essentially unique, forward price can be calculated for most investment assets. It also examines how the assumptions differ when dealing with the forward prices of consumption assets rather than investment assets.

Module 2 examines the various non-hedging trading strategies used by practitioners. Futures contracts have always been popular with traders who have no particular hedging interests. In this module, close attention is paid in particular to bond and money market futures trading strategies, such as bond basis trading, as these are probably the most widespread.

Objective

On completion of this course, you will be able to:
- Explain how the concept of arbitrage-free pricing generates unique values used to price futures contracts and forward transactions
- Calculate forward prices for a range of different assets, and identify why a forward price is not always equal to the price of an equivalent futures contract
- Describe the concepts of backwardation and contango
- Outline the various categories of non-hedging related trading strategies used in the futures/forwards markets
- Describe 'basis trading' and outline the particular way in which basis trading operates in the bond markets
- Explain the concept of 'spread trading' between futures contracts referencing different assets and different settlement dates for the same underlying asset

Content

Module 1: Forwards & Futures - Pricing
Topic 1: Basics of Forward Pricing
Topic 2: Different Forms of Forward Pricing
Topic 3: Contango & Backwardation

Module 2: Forwards & Futures - Trading
Topic 1: Trading Styles
Topic 2: Basis Trading
Topic 3: Different Contracts