OMX semester: A comprehensive guide for beginners

Have you ever heard of semesters in derivatives trading? They refer to the expiration dates of contracts and play a crucial role in managing risk and making profits in financial markets. Semesters can take many forms, from quarterly to monthly or even daily, and are used in contracts such as futures and options. Understanding how semesters work is a key part of trading derivatives, and can help traders stay ahead of the curve in an ever-changing market.

What are forwards and futures?

In finance, there are two main types of semesters: forwards and futures. The key difference between the two is the timing of the settlement process, which is the profit or loss made by the holder and issuer of a futures contract during its term.

Overall, both forwards and futures are important tools for hedging against price fluctuations and managing risk exposure in the financial markets. However, they differ in terms of their settlement processes and can be used in different contexts depending on the needs of market participants.

How do semesters work?

Exchange-traded futures often have multiple underlying assets per contract, with each contract typically comprising 100 underlying assets.

For example, a position in the Sweden 30 term of 1 contract of 1550 would correspond to a market position of SEK 155,000.

However, you don't need to pay this amount upfront, as futures contracts don't require an initial payment. Instead, you are required to maintain a security deposit to fulfill your obligations and cover the risk of the underlying asset decreasing in value during the term. This deposit is a percentage of the value of your position, and changes with fluctuations in market value.

What does counterparty risk mean?

In futures trading, counterparty risk refers to the risk that the party on the other side of a futures contract may default or fail to meet their contractual obligations. When you enter into a futures contract, you are essentially making a deal with another party. The other party is your counterparty in the transaction, and there is a risk that they may not be able to fulfil their end of the deal.

To reduce counterparty risk in futures trading, exchanges typically act as intermediaries between buyers and sellers, and require both parties to post margin (collateral) to cover potential losses. This margin helps to ensure that both parties will fulfill their obligations, even if the price of the underlying asset moves against them. It is important for traders to carefully evaluate the creditworthiness of their counterparty before entering into any futures transaction, and to monitor their counterparty's financial stability throughout the life of the contract.

How much does it cost to trade futures?

When you decide to trade futures, there are some costs you need to consider, such as brokerage and clearing fees.

Trading with OMX futures

Trading with OMX futures is a great way to engage in day trading. This is because they usually have a higher turnover than share futures. The OMX index currently has the best futures turnover. While there are also futures on the OMX Cap index, the turnover is lower.

OMX futures track the OMX value, but unlike stock futures, they do not have an underlying commodity. Instead, a cash final settlement takes place on the closing day. The value of a futures contract is determined by multiplying the index value by 100.

Futures transactions involve an agreement today, with delivery and payment taking place at a fixed date in the future. Each party involved in the transaction has a legal responsibility to fulfill the agreement.

If you have bought or sold an OMX future, you have two options: closing or netting.

1. Closing occurs on the closing day, while netting involves selling or buying a term in the same series at the current market price before the end date.
2. By netting, you can lock in profits or losses before the closing day.

To trade in futures, you must sign an option agreement with OMX through a broker that offers futures trading. Futures trading incurs no costs other than transaction costs, and there are no premiums involved.

OMX futures trading eliminates company risk, allowing you to trade primarily in market risk. You are not at the mercy of how individual shares perform, and it is usually possible to trade OMX futures regardless of the market situation.

Trading OMX futures is similar to trading in any security. Strategies such as running intraday charts on the underlying commodity/index can be appropriate when trading in futures and options. Additionally, the OMX index tends to be influenced by US100, so monitoring intraday charts on both can be advantageous during trading.