Whether you are a beginner or an experienced investor, futures market making can be an important part of your portfolio. Futures contracts allow you to bet on the future price of a commodity or currency. Futures can be traded in both a physical and electronic manner.
In addition to the traditional futures contract, there are many other types of futures products available, including E-mini futures, Micro E-mini futures and Metals futures. Futures market making can also be done on currencies, commodities, and stock market indices. These futures products can be traded directly, or used to hedge existing positions.
Market making is defined as an exchange-approved process that allows the purchase and sale of futures contracts. Market makers are compensated with exchange trading privileges in exchange for fulfilling their market maker obligations. During a trading session, market makers must respond to quote requests and provide continuous quotes. When a market maker fulfills these obligations, they receive a fee rebate. Market makers use trade data from across markets to help them determine a fair price. Market makers also manage their risk by trading quickly on the opposite side of the market. This helps improve liquidity in financial derivatives markets.
Futures market making involves a variety of different companies. There are companies that provide market making services on both the electronic and physical markets. The electronic exchanges don’t have to adhere to physical constraints, and are often able to authorize an unlimited number of market makers. Futures exchanges use a mark-to-market system to maintain margin equity. This system calculates the gains and losses of each contract position and adds or subtracts from the account balance.
A market order is an order to buy or sell a futures contract at whatever price is available at the time the order is placed. There are two types of market orders: market-on-opening and market-on-close. The former occurs at the start of the trading session, and the latter occurs at the end of the trading session. In either case, the market order is entered in the trading platform or pit. The market-on-opening order is the order to buy within the opening range of prices, while the market-on-close order is the order to sell within the closing range of prices.
The market-on-opening and market-on-close orders are the most important, because they are the ones that allow the market maker to capture the “bid and ask spread” (the difference between the bid and offer price). Market makers have no idea what the future price of a particular security is going to be, but if they bid $1.50, they could offer $1.90. During this round, the market maker could actually make a profit. However, they could also lose money. This is because the market maker had to pay a margin call (an amount of money deposited with a broker) to cover the market losses. Market makers also use derivatives to help manage their risk.
If you are a new trader, you might want to consider downsizing your contract size. A new trader should avoid trading in bulk, and should only trade one contract at a time. You should also avoid using all your money in your account at once. Instead, gradually increase your order size as you gain experience.
