Section 10 - Chapter 4 - Futures - CMT Level 1 2025 Exam Syllabus

Section 10 - Chapter 4 - Futures - Presented by Rohan Sharma - The CMT Coach - Chartered Market Technician CMT Level 1 Study Material - CMT Level 1 Chapter Wise Short Notes - CMT Level 1 Course Content - CMT Level 1 2025 Exam Syllabus

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1. Chapter 4 - Futures SECTION 10 - COMPARATIVE MARKET ANALYSIS Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

2. Agenda What Are Futures? Benefits for Investors Futures Terminology Futures Markets by Asset Class What Does a Technical Analyst Need? Challenges for a Technician This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

3. Futures Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

4. Futures Key Facts About Futures 1. Definition: Futures are standardized financial contracts where two parties agree to buy or sell an asset at a predetermined price on a future date. 2. Standardization: Traded on exchanges with predefined contract sizes, expiration dates, and settlement procedures. 3. Leverage: Requires only a fraction of the total contract value as margin, amplifying both gains and losses. Mark-to-Market: Daily settlements based on market prices, ensuring unrealized profits/losses are accounted for. Settlement: Can be cash-settled (price difference paid) or physically delivered (actual asset transfer).

5. Futures Key Facts About Futures 5. Types: o Commodity Futures (gold, oil, wheat, coffee) o Financial Futures (stock indices, bonds, currencies) o Interest Rate Futures (Treasury bonds, LIBOR, SOFR) o Crypto Futures (Bitcoin, Ethereum , etc.) 6. Uses: o Hedging: Risk management tool for businesses and investors. o Speculation: Traders bet on price movements for profit. o Arbitrage: Exploiting price differences between markets.

6. Futures Key Facts About Futures 8. Expiration: Futures expire on a specific date, after which they are either settled or rolled over to a new contract. 9. Liquidity: High liquidity in major futures markets, making them attractive for traders. 10. Regulation: Overseen by entities like the CFTC (U.S.), SEBI (India), FCA (UK), ensuring transparency and compliance.

7. Futures Futures Cheat Sheet Aspect Details Contract Size Fixed quantity of asset per contract (e.g., 100 barrels of oil) Expiration Date Last trading day for the contract Margin Requirement Initial deposit needed to enter a position Leverage Can control large positions with a small margin Mark-to-Market Daily profit/loss adjustments Settlement Type Cash settlement or physical delivery Regulatory Body CFTC (U.S.), SEBI (India), FCA (UK), etc. 🚀 What Makes a Successful Technical Analyst in Futures? ✔ Combining technical analysis with macroeconomic awareness. ✔ Using multiple confirmations for trade setups. ✔ Staying disciplined with risk management. ✔ Continuously learning and adapting to market changes.

8. Futures Comparison: Futures vs. Other Derivatives Feature Futures Options Forwards Swaps Standardization Yes Yes No No Exchange-Traded Yes Yes No No Obligation to Buy/Sell Yes No (only buyer has the right) Yes Yes Settlement Daily Mark-to-Market On expiration (if exercised) On contract expiration Periodic cash flows Leverage High Moderate High Varies Liquidity High High Low Low Use Cases Hedging, Speculation Hedging, Speculation Custom Hedging Interest Rate & Currency Hedging

9. Futures Interpretation of Futures Market 1. Price Trends: If futures prices are higher than spot prices ( contango ), it suggests expectations of rising prices. If lower (backwardation), it indicates expected price declines. 2. Open Interest: A rising number of open contracts suggests strong market participation. 3. Basis Analysis: The difference between spot and futures prices can indicate demand-supply dynamics. 4. Hedging vs. Speculation: High hedging activity suggests market risk aversion, while high speculative activity suggests profit-seeking traders dominating. 5. Economic Indicators: Futures markets in commodities, interest rates, and indices often serve as leading indicators of economic conditions.

10. Futures Interpretation of Futures Market 1. Price Trends: If futures prices are higher than spot prices ( contango ), it suggests expectations of rising prices. If lower (backwardation), it indicates expected price declines. 2. Open Interest: A rising number of open contracts suggests strong market participation. 3. Basis Analysis: The difference between spot and futures prices can indicate demand-supply dynamics. 4. Hedging vs. Speculation: High hedging activity suggests market risk aversion, while high speculative activity suggests profit-seeking traders dominating. 5. Economic Indicators: Futures markets in commodities, interest rates, and indices often serve as leading indicators of economic conditions.

11. Futures Terminology Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

12. Futures Terminology General Terms 1. Futures Contract – A standardized agreement to buy or sell an asset at a set price on a future date. 2. Underlying Asset – The asset a futures contract is based on (e.g., gold, crude oil, stock index). 3. Expiration Date – The last day a futures contract is valid before settlement. 4. Contract Size – The specified amount of the asset covered by a single futures contract. 5. Lot Size – The minimum quantity of an asset that can be traded in a contract.

13. Futures Terminology 🔹 Pricing & Valuation 6. Spot Price – The current market price of the underlying asset. 7. Futures Price – The agreed-upon price for the future delivery of the asset. 8. Basis – The difference between the spot price and the futures price (Basis = Spot Price – Futures Price). 9. Contango – When futures prices are higher than spot prices, indicating expectations of rising prices. 10. Backwardation – When futures prices are lower than spot prices, indicating expectations of price declines.

14. Futures Terminology 🔹 Trading & Margin 11. Initial Margin – The upfront deposit required to open a futures position. 12. Maintenance Margin – The minimum account balance required to keep a futures position open. 13. Margin Call – A demand for additional funds if the account balance falls below the maintenance margin. 14. Leverage – The ability to control a large contract value with a small amount of capital. 15. Mark-to-Market (MTM) – The daily settlement of gains and losses based on market prices.

15. Futures Terminology 🔹 Order Types 16. Market Order – An order to buy or sell immediately at the best available price. 17. Limit Order – An order to buy or sell at a specified price or better. 18. Stop-Loss Order – An order to automatically close a position when a certain price is reached. 19. Stop-Limit Order – A stop order that converts to a limit order once the stop price is reached.

16. Futures Terminology 🔹 Positions & Settlement 20. Long Position – Buying a futures contract with the expectation that the price will rise. 21. Short Position – Selling a futures contract with the expectation that the price will fall. 22. Offsetting – Closing a futures position by taking the opposite trade. 23. Settlement – The process of finalizing a contract, either through cash settlement or physical delivery. 24. Rollover – Closing a near-term contract and opening a longer-term one to maintain exposure.

17. Futures Terminology 🔹 Market Participants 25. Hedger – An individual or company using futures to reduce risk from price fluctuations. 26. Speculator – A trader aiming to profit from price movements without intending to take delivery. 27. Arbitrageur – A trader exploiting price differences between markets for risk-free profit. 28. Liquidity Provider – Market participants who provide buy and sell orders to maintain liquidity.

18. Futures Terminology 🔹 Exchange & Regulation 29. Clearing House – An entity that ensures contract settlement and reduces counterparty risk. 30. Contract Specifications – The details of a futures contract, including size, expiration, margin, and settlement type. 31. Tick Size – The minimum price movement allowed in a futures contract. 32. Daily Price Limit – The maximum amount a futures price can move up or down in a day. 33. Regulatory Body – Organizations like CFTC (U.S.), SEBI (India), FCA (UK) overseeing futures markets.

19. Biggest Problem a Technical Analyst Faces in the Futures Market 🔹 1. Market Noise & False Signals • Futures markets are highly volatile, leading to frequent price swings and fake breakouts. • Indicators give conflicting signals, making it hard to confirm trends. • Algorithmic trading & high-frequency trading (HFT) can create erratic price moves, distorting patterns. 🔹 2. Leverage-Driven Whipsaws • Futures trading involves high leverage, amplifying price fluctuations. • False breakouts in chart patterns (e.g., head & shoulders, flags) often trigger stop-losses before the real move happens.

20. Biggest Problem a Technical Analyst Faces in the Futures Market 🔹 3. Changing Market Conditions • Technical indicators may work in trending markets but fail in range-bound or choppy conditions. • Trend reversals can be sudden, making it hard to react in time. 🔹 4. External Market Influences • Macroeconomic data (interest rates, inflation, Fed policy, geopolitical events) can override technical signals. • Unexpected news (earnings, weather events in commodities, supply chain disruptions) can cause sharp, unpredictable moves.

21. Biggest Problem a Technical Analyst Faces in the Futures Market 🔹 5. Over-Reliance on Indicators • Some traders overfit their strategies, making them work well in backtests but fail in live markets. • Lagging indicators (e.g., moving averages) react too late, while leading indicators (e.g., RSI, MACD) can give premature signals. 🔹 6. Liquidity & Slippage Issues • Thinly traded futures contracts may have erratic price action, making it harder to rely on technical signals. • Slippage (getting filled at worse-than-expected prices) can distort trade execution.

22. Biggest Problem a Technical Analyst Faces in the Futures Market ✅ Solutions for Technical Analysts • Use multiple confirmation signals (e.g., price action + volume + indicators). • Adapt strategies for different market conditions (trend-following vs. mean-reversion). • Monitor macroeconomic factors to avoid trading ahead of major news events. • Backtest strategies but also test them in live markets with real-time data.

23. Futures Markets by Asset Class Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia

24. Futures Markets by Asset Class 1. Commodity Futures Contracts based on physical goods, including energy, metals, and agricultural products. 🔥 Energy Futures • Crude Oil (WTI, Brent) – NYMEX, ICE • Natural Gas – NYMEX • Gasoline & Heating Oil – NYMEX • Electricity & Coal – ICE, EEX ⚒ Metals Futures • Gold & Silver – COMEX (CME Group) • Copper, Aluminum, Zinc, Lead – LME, COMEX • Platinum & Palladium – NYMEX, LME 🌾 Agricultural Futures • Grains & Oilseeds – Corn, Wheat, Soybeans (CBOT - CME Group) • Soft Commodities – Coffee, Cocoa, Sugar, Cotton (ICE) • Livestock – Cattle, Lean Hogs, Feeder Cattle (CME)

25. Futures Markets by Asset Class Financial Futures Contracts based on financial instruments like indices, interest rates, and currencies. 📈 Stock Index Futures • S&P 500 (ES) – CME • Dow Jones (YM) – CME • NASDAQ-100 (NQ) – CME • Russell 2000 (RTY) – CME • DAX, FTSE 100, Nikkei 225 – Eurex , CME 💰 Currency Futures (Forex) • EUR/USD, GBP/USD, USD/JPY – CME • Bitcoin (BTC) & Ethereum (ETH) Futures – CME, Binance , Deribit 📉 Interest Rate Futures • U.S. Treasury Bonds & Notes – CME • Eurodollar, SOFR, LIBOR Futures – CME, ICE • German Bund, UK Gilt, JGBs – Eurex , LSE

26. Futures Markets by Asset Class 3. Cryptocurrency Futures Contracts based on digital assets, mainly traded on traditional exchanges and crypto-native platforms. • Bitcoin (BTC) & Ethereum (ETH) Futures – CME, Binance , Deribit • Altcoin Futures (SOL, XRP, ADA, etc.) – Binance , Bybit , OKX 4. Environmental & Alternative Futures Contracts linked to non-traditional assets. • Carbon Credits & Emissions Allowances – ICE, EEX • Weather Derivatives (Temperature, Rainfall, Hurricanes) – CME • Freight & Shipping Futures – Baltic Exchange

27. Futures Markets by Asset Class Major Futures Exchanges Exchange Key Contracts Traded CME Group (CBOT, NYMEX, COMEX) Stock indices, commodities, forex, interest rates Intercontinental Exchange (ICE) Energy, softs, financials London Metal Exchange (LME) Industrial metals Eurex European stock indices, interest rates Tokyo Commodity Exchange (TOCOM) Gold, rubber, oil Shanghai Futures Exchange (SHFE) Metals, energy, agriculture

28. Chapter 5 – Exchange Traded Products SECTION 10 - COMPARATIVE MARKET ANALYSIS Presented By : This Content is Copyright Reserved Rights Copyright 2025@PTAIndia