What are product futures?

Product futures in Australia are contracts between two parties to sell an underlying product at a particular price, with delivery taking place sometime in the future. Instead of buying and selling directly, buyers and sellers of futures use exchanges to trade. Exchanges effectively act as market makers or “middlemen” who bring together people who want to buy or sell what is being traded.

Exchanges that offer futures on agricultural products include the Australian Grain Exchange (AGX), the Sydney Futures Exchange (SFE) and more recently, CMC Markets (CMCX). Some financial exchanges also offer futures; these include ASX (ASX) and SGX AsiaClear (SCC).

Most exchanges charge fees to members who wish to trade on their markets and transactions costs associated with trading. Have a look at the Saxo markets for more information on this. 

Futures also require a buyer to post margin – this is a good-faith deposit kept in their account until the contract is closed. Exchanges typically determine initial margins based on the risk associated with doing business. In Australia, no laws or regulations explicitly govern futures transactions. Still, exchanges set out rules for trading, including what constitutes a valid contract and how the margin system works.

Most Australian futures contracts traded on exchanges have a standard form that outlines payment terms and conditions and particulars such as quantity, quality and delivery date.

What futures products are available in Australia?

CMC Markets (CMCX)

They offer financial futures such as interest rate contracts, foreign exchange contracts and equity index contracts on Australian stocks. The underlying products are indices that represent the performance of several stocks within an industry or sector of the economy. Delivery takes place between two business days to many months later.

Sydney Futures Exchange

This exchange offers futures on physical commodities, including oil, aluminium, natural gas, cotton, gold and silver. These derivatives are based on the price of these commodities, which are all traded globally. Delivery can take place up to twelve months later.

Australian Grain Exchange

The only futures exchange in Australia offers contracts for grains and oilseeds such as wheat, soybeans, and canola. The contract sizes vary, with some only covering a few tonnes and others covering hundreds of tonnes. Most trades settle within four weeks of the transaction date, but delivery can occur many months after this time.

ASX

ASX offers futures on the Australian dollar, which are traded electronically. These futures allow traders to take positions on movements in the value of the Australian dollar, with contracts settled within three days if both parties agree that there has been no change in market conditions between trade date and settlement date.

What are the differences between these exchanges?

Delivery time

CMC Markets (CMCX) offers delivery between two business days to many months later. The Sydney Futures Exchange (SFE) offers delivery that can take place up to twelve months later, and the Australian Grain Exchange (AGX) offers delivery that can occur many months after the transaction date.

Underlying product

The underlying products are indices that represent the performance of several stocks within an industry or sector of the economy for CMC Markets (CMCX), physical commodities including oil, aluminium, natural gas, cotton, gold and silver for the Sydney Futures Exchange (SFE). In contrast, there are only contracts on grains and oilseeds such as wheat, soybeans and canola for the Australian Grain Exchange (AGX).

Exchange fees

CMC Markets (CMCX) charges what they call ‘trade commissions’, the standard percentage-based fees for trading derivatives, whereas the Sydney Futures Exchange (SFE) charges transaction fees. The Australian Grain Exchange (AGX) charges transaction fees and margin rates.

Margin rate

The margin rate is set by the Sydney Futures Exchange (SFE), whereas it is set by the exchange that offers the contract that you’re buying or selling on CMC Markets (CMCX). However, all exchanges require traders to post margin – this is a good faith deposit kept in their account until the contract is closed.

Settlement

CMC Markets (CMCX) settles trades within three days if both parties agree that there has been no change in market conditions. In contrast, the Sydney Futures Exchange (SFE) only requires delivery by the contract expiry date, which must occur on or after the third business day following the trade date. The Australian Grain Exchange (AGX) settles contracts within four weeks of the transaction date.