Futures

The main purpose and field of activity of TMEX is to carry out stock exchange activities in order to ensure the execution of the trade of electronic warehouse receipts and futures contracts based on electronic warehouse receipts created by licensed warehouse operators within the framework of Law No. 5300 and the relevant legislation.

What is futures trading on the stock exchange? 

Futures are also traded in over-the-counter markets through bilateral agreements. However, transactions in OTC markets are not transparent and carry counterparty risk. Since trade information is not published on a regular basis, the forward price discovery function does not function effectively.

Futures contracts traded on an organized exchange are cleared by a central clearing agency that acts as a seller to all buyers and as a buyer to all sellers. Every futures transaction executed on organized exchanges is secured by the clearing house.

Abroad, futures markets for agricultural commodities have been in operation for over one hundred and fifty years for basic agricultural products. With their broad participant base and deep markets, these trading platforms play an important role in pricing agricultural commodities and reduce price uncertainty in global trade.

Türkiye, with its rich agricultural resources and diversity, offers a favorable environment for the development of financial instruments for agricultural commodities. Futures markets protect agricultural producers and investors against price volatility and create a more transparent and predictable price mechanism in the market. These developments increase investor confidence, enhance the international competitiveness of local markets and enable Türkiye to play a more active role in agricultural commodity trade.

The futures market, which is currently being operationalized by TMEX, will enable the formation of future price expectations, facilitate feasibility studies in the agricultural sector and contribute significantly to creating an environment of confidence for new investments.

What is the difference between an alivre contract and a futures contract, which is a standardized alivre contract traded on exchanges?

We can define an alivre contract as a non-standard futures contract whose terms are determined by the parties as a bilateral agreement in which the seller undertakes to transfer and deliver the underlying asset at a future date and the buyer undertakes to pay the price of the underlying asset at an agreed future date.

A futures contract is a standardized type of forward contract. It can be defined as a contract traded on the Exchange that includes the obligation to buy or sell the product determined by the Exchange as the underlying asset of the contract, or the electronic warehouse receipts issued to represent the product in accordance with the legislation, or the index and other indicators calculated in relation to the electronic warehouse receipts, at a predetermined maturity, price and amount according to the nature of the underlying asset and the type of contract.

What are the basic elements of a futures contract?

These are contracts in which the agreement is made today and, unlike spot markets, stipulate the fulfillment of obligations in a future maturity. The markets where these contracts are traded are called derivatives markets.

Since their value is directly linked to the value of another financial asset, indicator or commodity, they are called “derivatives”.  The reason for the use of the word derivative is that they are based on another market, product or indicator (underlying) and their value will vary according to the underlying (product, commodity, indicator, instrument). 

Derivatives allow the trading of rights and obligations related to the underlying asset without the need for ownership of the underlying asset to change hands. 

Just as spot market prices are important to the parties, future prices are equally important to the parties.

Why are derivatives markets born? 

In a free market, the price of a good or service fluctuates according to supply and demand. We can buy and sell the goods or services we own at the prices that occur in market conditions. 

In order to eliminate the risks arising from future price uncertainty, futures contracts were started to be traded, and these contracts were gathered under the roof of organized stock exchanges in order to guarantee the fulfillment of the obligations of the parties in the futures contracts. 

In this way, producers and traders seeking to hedge against price risk have found a solution, investors have an attractive investment instrument, and financial intermediary institutions and banks have been able to offer new alternative products to their customers.

What is the purpose of a futures contract?

• Hedging: Investors take an inverse position in these contracts to hedge their assets or liabilities against market risk.
• Trading: Positions taken to make a profit in line with market expectations.
• Arbitrage: Positions taken in different markets to take advantage of price differences between spot and futures markets.

What are the benefits of futures markets?

In general, they ensure that the price formation mechanism works more efficiently. Futures markets provide alternative investment opportunities. Therefore, if futures markets are added to the existing markets, both the speed of circulation of money in the markets increases and the incoming information is reflected in prices faster. 

• Futures markets help to increase market efficiency and reduce price fluctuations (volatility) in the spot market.
• Futures markets generally make spot markets more liquid.
• They also allow investors who cannot take enough positions due to lack of capital to invest with the help of the leverage effect.