Spot-Quoted futures are innovative contracts that bridge the gap between exchange-traded futures and spot-traded OTC products. The products being quoted at the spot price offers traders a high degree of accessibility due to its transparent and simple pricing structure.
How Spot-Quoted futures work
Spot-Quoted futures are longer-dated contracts with an initial expiration date of December 2030. There’s no quarterly contract roll with Spot-Quoted futures contracts, making them a unique entry point to exchange-traded futures for many market participants.
Spot-Quoted futures also enable increased exposure with less capital, enhancing capital efficiency.
One of the unique features of Spot-Quoted futures is that they trade at the spot price. This makes it easier for traders to understand the value of their positions.
Each Spot-Quoted futures product will have 23-hour on-screen markets. It will trade at a spot price, or what traders are used to seeing on major financial news sites.
Spot-Quoted futures also benefit from having a lower multiplier, which means a trader can manage their risk more effectively through lower market exposure. Next, a financing component is transparently added and determined via competitive markets. This adjustment is factored into the cleared price.
The financing component is initially set to 0 at launch and then is updated the next day to reflect the difference in the basis between the futures and cash index levels. These are adjusted and added to the cleared price of the futures contracts each day.
If these products are used for intraday trading, this financing adjustment won’t be realized.
These contracts may appeal to active, intraday traders who are looking to trade on current market prices. They also offer a highly regulated way to access exchange-traded markets, with the reduced risk of physical delivery or additional costs incurred when rolling a contract.
Conclusion
With no quarterly roll, smaller size and a simple spot pricing structure, Spot Quoted futures offer a cost-efficient, transparent and regulated way to trade highly liquid markets.
For more information on Spot-Quoted futures, visit cmegroup.com/spotquoted
