BOND FUTURES

Bond futures work differently to those listed on the previous pages as futures have specific rules and regulations, everything about a futures contract is standardised except its price, and futures contracts are traded at a futures exchange and only at a futures exchange; where its purpose is to facilitate trade.

One of the most important functions of a futures exchange is to provide a clearing operation. The Clearing House is responsible for clearing trades and for the day-to-day settlement. What does that mean? Well, the Clearing House records all the trades happening each day and at the end of the trading session, it matches or reconciles contracts bought and sold.

The Clearing House also settles the traders’ accounts to the market each day. When you buy or sell a futures contract, the exchange requires you to put up a performance bond. That’s a cash deposit to cover any loss your investment may incur. Money is added to your performance bond balance if your position earned a profit that day.

However, if your position lost money that day, money is subtracted from the balance. And you may get a call to put more money into the account. The Clearing House figures that out.