Plain-language primers on forwards, futures, options and bonds, plus the log of desk questions ·
BUILD 2026-11-04 · learn-v4 · Dashboard · Bloomberg Course
The map
Three of the four are derivatives: contracts whose value comes from something else (an index, a share, a currency).
The fourth, a bond, is a loan you can trade. Learn them in this order: forwards are the simplest promise, futures are forwards
made safe for a crowd, options are a promise only one side has to keep, and bonds are the rates that sit under all of them.
Forward
Future
Option
Bond
In one line
A private promise to trade later at a price agreed today
The same promise, standard and traded on an exchange
The right, not the duty, to trade at a set price
A loan: you lend, they pay interest, then repay
Must you trade at the end?
Yes, both sides
Yes, both sides (or close out before)
Buyer: only if it pays. Seller: if the buyer chooses
No trade, you just get repaid
Cost upfront
Usually nothing
A deposit (margin), not a price
The buyer pays a premium
The full price of the bond
Where it trades
Between two parties (a bank and a client)
An exchange (CME, SGX)
Exchange (listed) or between parties (OTC)
Mostly between dealers; some on exchange
Main risk
The other side fails to pay
Price moves against you, daily cash calls
Buyer: losing the premium. Seller: large losses
Rates rise (price falls), issuer defaults
Typical use
Companies locking a currency rate
Fast hedging or betting on an index or commodity
Insurance, income, shaped bets
Steady income, safety, a view on rates
Forwards
A forward is an agreement today to buy or sell something on a future date at a price fixed today. No money changes hands
until that date.
Example (illustrative numbers)
A Singapore exporter will receive USD 1 million in three months and worries the US dollar will weaken. It agrees with its bank
today to sell that USD 1 million in three months at 1.2900 SGD per dollar.
In three months the market rate is 1.2500: the exporter still gets 1.2900, so it is SGD 40,000 better off.
The market rate is 1.3300: it still gets 1.2900, so it gave up SGD 40,000 of upside.
Either way the exporter knew its number on day one. That certainty is the product.
How the forward price is set
It is not a forecast. It is today's price adjusted for the cost of waiting, so nobody can make free money by trading now and
holding instead.
Currencies: the gap between the two interest rates. When US rates are above Singapore rates, the USD forward sits below
the spot rate, because holding US dollars for three months already earns you more interest.
Shares or an index: today's price plus the interest you would pay to borrow the money, minus the dividends you would collect.
The weak spot: the other side
A forward is a private contract. If the bank or the client cannot pay on the day, the deal fails. Nothing is settled in between,
so a large gain can build up for months and then not be paid. This "counterparty risk" is what futures were invented to fix.
Check yourself: the exporter's forward is at 1.2900 and the market ends at 1.2500. Who gained?
The exporter, by SGD 40,000 on USD 1 million (0.04 per dollar). The bank is on the other side and absorbs it, usually hedged with
another client or the market.
Check yourself: does a forward price below spot mean the bank expects the dollar to fall?
No. It only reflects the interest rate gap. The forward is the price that removes free money, not anyone's view.
Futures
A future is a forward with the risks engineered out so millions of strangers can trade it: standard sizes and dates, an
exchange in the middle of every trade, a deposit up front and gains and losses paid every day.
How it works
1. A promise, not a thing
Buying a share means owning it. Buying a futures contract means promising to settle at today's price on the expiry date. Because
it is only a promise, you can sell first without owning anything.
2. Your price is locked, the market keeps moving
Trade at 6,800 and your deal stays at 6,800. The quoted futures price keeps changing with every new trade. Your profit or loss is
the gap between your locked price and the latest one.
3. Settled every day (mark to market)
Each evening the exchange compares your price with the day's close and moves the cash. Losses come out of your deposit (margin); if
it runs low you get a margin call to top up, or the position is closed for you.
4. Expiry lands on the real index
S&P 500 futures expire in March, June, September and December and settle in cash against the actual index. No shares change
hands. Most traders close or roll to the next contract before then.
The S&P 500 E-mini in numbers
Item
Detail
Contract size
USD 50 for every index point (the Micro E-mini is USD 5)
Hours
Nearly 24 hours, Sunday evening to Friday afternoon US time, with a one-hour break each day
Deposit
A small slice of the contract's value, so a little cash controls a large position (leverage)
Price vs the index
Usually a little above the index: borrowing cost minus dividends. The gap (the basis) shrinks to zero at expiry
Going short (illustrative numbers)
You expect a fall and sell one contract at 6,800.
Bad news: futures drop to 6,700.
You buy one back at 6,700, which cancels your promise.
100 points × USD 50 = USD 5,000 profit.
Had futures risen to 6,900 you would lose USD 5,000. A short has no ceiling on its loss, because a price has no ceiling.
Why futures fall so fast
Unlimited sellers. Anyone with a deposit can sell; you need not own shares, so new sellers pile on top of holders getting out.
Cheap to bet big because of the small deposit.
Open overnight. When the stock market is shut, futures are the only place to hedge, with fewer buyers awake.
Falls feed themselves. Stop losses and margin calls force more selling.
And bounce fast: every short must buy back one day, so a less bad outcome sets off a rush (short covering).
What "a futures selloff" means
Not more buyers. Every trade has a buyer and a seller, so the counts always match. A selloff means sellers are in a hurry and take
whatever buyers offer, so each trade prints lower. Like a fish stall at closing time: fish still sells, at a falling price.
Check yourself: you bought one E-mini at 6,750. It closes at 6,730 today and 6,770 tomorrow. What happens to your cash?
Today 20 points × 50 = USD 1,000 leaves your account. Tomorrow 40 points × 50 = USD 2,000 comes in. Net gain USD 1,000, the same
as 6,770 minus 6,750, but paid day by day.
Check yourself: forward or future, which one has counterparty risk?
The forward. In a future the exchange's clearing house stands between both sides and daily settlement stops losses piling up.
Options
An option gives the buyer a right but not a duty to buy or sell at a set price (the strike) up to a set date (expiry).
The buyer pays a price for that right (the premium). The seller collects the premium and must deliver if the buyer chooses.
Call
Put
Right to
Buy at the strike
Sell at the strike
Buyer wins when
The price rises above strike plus premium
The price falls below strike minus premium
Buyer's worst case
Loses the premium
Loses the premium
Seller's deal
Keeps the premium, may have to sell at the strike (losses unlimited if uncovered)
Keeps the premium, may have to buy at the strike (as if buying the dip)
Feels like
A deposit on a flat at today's price
Insurance on your car
US share options cover 100 shares per contract, so a premium of USD 2.00 costs USD 200.
Worked example (illustrative numbers): share at USD 100
Price at expiry
Buy 105 call for 2.00
Buy 95 put for 1.50
Sell 95 put for 1.50
USD 85
−200
+850
−850
USD 95
−200
−150
+150
USD 100 (unchanged)
−200
−150
+150
USD 107
0 (break-even)
−150
+150
USD 115
+800
−150
+150
Per contract of 100 shares. The put seller who ends at USD 85 buys shares at 95 and is down 10 a share, softened by the 1.50 collected.
That is why selling puts is called being paid to wait to buy a share cheaper.
What a premium is made of
Intrinsic value
What the option is worth if exercised now. A 95 call with the share at 100 has 5 of intrinsic value. If exercising would lose money,
intrinsic value is zero ("out of the money").
Time value
The rest of the premium: the chance of a better outcome before expiry. More time and bigger expected swings (volatility) make it
larger. It melts to zero at expiry.
Moneyness
In the money: exercising pays. At the money: strike near the price. Out of the money: exercising would not pay,
all time value.
The Greeks: how the premium moves
Greek
Answers
Rule of thumb
Delta
How much the option moves when the share moves 1
At the money ≈ 0.50. Also a rough chance of ending in the money
Gamma
How fast delta itself changes
Largest near the strike close to expiry, where options get jumpy
Theta
What one day of time costs
Buyers lose it, sellers earn it; speeds up in the last weeks
Vega
What a 1 point rise in implied volatility adds
Why options get dear when markets are scared
Implied volatility and the VIX
Implied volatility (IV) is the size of swing the option price is assuming. The VIX is the IV of S&P 500 options over the next
30 days. Above about 20 reads as nervous. When futures sell off, demand for puts as insurance rises, so IV and the VIX rise too.
Traps
Being right on direction but too late: time value melts.
Buying before an event when IV is high, then losing on the IV drop after it (IV crush).
Selling options for income without sizing for the rare big move.
More in the dashboard's Options tab, Notes (earnings lessons and the four-position cheat sheet).
Check yourself: share at 100, a 105 call costs 2.00. Where does the buyer break even at expiry?
At 107: the strike 105 plus the 2.00 premium.
Check yourself: why does a put cost more the day after a market scare, even if the share has not moved?
Implied volatility rose (vega), because everyone wants insurance at once.
Bonds
A bond is a loan you can buy and sell. The issuer (a government or a company) borrows, usually USD 100 a unit (face value),
pays a fixed interest (the coupon) and repays the face value on the maturity date.
The seesaw: price and yield
The coupon is fixed for life. If new bonds pay more, nobody pays full price for your old, lower coupon, so its price falls until the
return matches. Yields up, prices down. Yields down, prices up.
Yield
The yearly return if you buy at today's price and hold to maturity, coupons plus the gain or loss to face value. "The US 10-year
Treasury yield is 4.90%" means that is what a buyer locks in today.
Duration: how sensitive
Roughly the percentage a bond's price moves for a 1 point (100 basis point) yield move. A US 10-year Treasury has a duration of about
8: yields down 0.06 points (6 bp) means a price gain of about 0.5%. Longer bonds move more.
Credit spread
The extra yield a company pays over a government bond of the same maturity, for the chance it does not repay. Spreads widen when
investors are scared and narrow when they are calm.
The yield curve
Yields across maturities. Normally longer pays more (the US 2-year at about 4.55% and the 10-year at about 4.90% on 3 Nov 2026).
Short yields follow the Fed; long yields follow growth, inflation and supply.
Why bonds matter to stocks
Bond yields are the base rate everything else is priced from. Higher yields make future company profits worth less today, which
weighs most on growth and tech stocks. In a scare, money runs into government bonds (a "flight to safety"), so yields fall while
stocks fall.
Term
Plain meaning
Basis point (bp)
One hundredth of one percent: 4.90% to 4.84% is 6 bp
Par
Face value, 100. Above 100 = premium, below = discount
Treasury
US government bond (bills under a year, notes 2 to 10 years, bonds 20 to 30 years)
Investment grade / high yield
Rated BBB or better / below BBB ("junk"), which pays a wider spread
Check yourself: you hold a 5% bond and new similar bonds now pay 6%. Is your bond worth more or less than 100?
Less. Its price drops until a buyer's return matches about 6%.
Check yourself: stocks fall and the US 10-year Treasury yield falls too. Good news for bonds or bad news for growth?
Usually a safety bid: money leaving risky assets for Treasuries. Bond holders gain, but it signals fear, not relief.
One night, four markets
The night of 3 to 4 Nov 2026 (US midterm results) shows how the four connect. One piece of news, read four ways.
Market
What moved
What it tells you
Futures
S&P 500 futures about −1.3%, Nasdaq 100 futures about −2.2%, Dow futures about −0.8%
The live vote on stocks while the cash market was shut; tech led
Options
VIX futures above 20 (about 20.9)
Insurance got dearer: puts in demand
Bonds
US 10-year Treasury yield down about 5 to 6 bp to about 4.90%; 2-year down about 6 bp
Flight to safety, so bond prices rose
Currencies (where forwards live)
Dollar index down about 0.4% to about 101.3
Lower US yields make holding dollars less attractive; forward rates reprice with the rate gap
Snapshots from Tuesday evening US time; sources differ by a few tenths depending on the time taken. CNBC and Reuters, 3 to 4 Nov 2026.
Desk questions
Market questions from the desk, newest first, each with the structured answer and the follow-ups it raised.
General study notes, not advice.
What is driving the Nikkei's rebound from its intraday lows? Is there a catalyst behind the Hang Seng trading higher?
Wed 4 Nov 2026, Asian afternoon
Japan · Hong Kong · elections · AI and chips
Short answer. The Nikkei's fall was a narrow liquidation of AI and chip names after a holiday. Once it reached 60,000, a round
number just under the July low, bargain hunters came in, helped by softer US yields, a weaker dollar and a recovering KOSPI. The Hang Seng
has no single headline catalyst: it is a relative winner on a day that punishes US AI exposure, led by China chipmakers, biotech and
solar, with Beijing's buyback support underneath.
Nikkei: from −4.84% to about −1.8%
The low. 60,030.10 (−4.84%, lowest since May), below the July low of 60,448.90. It then recovered to about 61,944, roughly 3.2% off the low.
1. A gap down that overshot. Japan was shut on Tuesday (holiday), so two days of US news (the Apple margin warning and the
midterm count) hit at one open.
2. The selling was narrow. At one point 130 of the 225 stocks fell and 95 rose. The damage sat in AI and chip names: Kioxia
about −13%, Disco about −10%, SoftBank Group and Advantest over −8% each, Renesas about −7.6%, Tokyo Electron about −7%. With the rest
of the market holding, the index snaps back as soon as those names stop falling.
3. Support. Buyers showed up around 60,000, the round number and the July low area.
4. Relief from other markets. The KOSPI recovered, US Treasury yields eased and the dollar index slipped to about 101.4.
AMD's earnings beat is a reminder that AI demand itself has not cracked; the fear is about US rules on data centres.
Caveat. One bounce does not end the selling. The index is still far below its 55-day average (about 65,300), no chamber had
been formally called by late in the Asian session, and the Texas governor race was unresolved.
Hang Seng: up about 1%
The move. About 23,770 (+1.0%) in the afternoon against Tuesday's close of 23,525.97, after opening lower and trading
0.2% to 0.4% down in the morning.
The leaders (a quote-page ranking, timing unconfirmed): WuXi Biologics +11.4%, Hua Hong Semiconductor +9.4%, Xinyi Solar +8.6%,
SMIC +8.0%, Weichai Power +6.7%. An afternoon flash credits pharmaceutical outsourcing stocks.
Sourced support. The People's Bank of China said applications for its share buyback loan scheme passed 200bn yuan (the rate
was cut to 1% and the scheme made permanent).
Our reading, not a reported catalyst. (1) Hong Kong has little exposure to US data centre rules, so money rotated toward it as
AI names in Japan and Korea were sold. (2) Chinese chipmakers (SMIC, Hua Hong) gain on a home-grown chip story when US AI
leaders face scrutiny. (3) Xinyi Solar mirrors US solar shares rising on a Democratic Congress. (4) A weaker dollar and lower US yields
ease Hong Kong funding through the dollar peg.
Mixed signals from Beijing. The PBoC raised banks' foreign currency reserve requirement and set a weaker yuan fixing (yuan at
a two-week low), and a private survey put October services growth at a three-month low. The yuan moves are not why the index
rose; their effect cuts both ways (follow-up below).
Follow-up: how do the reserve requirement and the weaker fixing touch the Hang Seng?
What the two moves do. Raising the foreign currency reserve requirement makes banks park more of their US dollar deposits
with the central bank, so fewer dollars circulate onshore and the yuan tends to weaken. The weaker fixing (the daily midpoint the
yuan trades around) points the same way. Together: Beijing is letting the yuan slip.
Why that is usually a drag. Most Hang Seng companies earn in yuan but are priced in Hong Kong dollars, which are tied to the
US dollar. A weaker yuan shrinks their profits once converted, and it can stir worries about money leaving China.
Why it can help. (1) Exporters (machinery, solar) get cheaper abroad. (2) Mainland investors buying Hong Kong shares through
Stock Connect (southbound flows) hold a Hong Kong dollar asset, which gains in yuan terms when the yuan falls; that makes Hong Kong
shares a way to hedge a weaker yuan. (3) A softer yuan reads as easier money in China, the same family as the buyback support.
Net. A headwind on paper, partly offset by those channels. Today's rise came from the sector rotation and the buyback support,
not from the yuan.
Follow-up: could one stock (say Link REIT) be the reason?
The test: weight × move. A stock's push on the index is its index weight times its own move. Link REIT is a small weight
(roughly 1% to 2%, check the current figure). Even a 5% jump adds only about 0.05 to 0.1 points of percentage to the index, about
10 to 25 index points out of a roughly 245-point rise. It can help; it cannot be the whole story.
Why a REIT would rise today. Lower US yields pull Hong Kong interest rates (HIBOR) down through the dollar peg. REITs borrow
and pay out rent, so cheaper money and a lower bond yield to compete with make them worth more.
Who can move the index alone. Only the heavyweights (Tencent, Alibaba, HSBC, Meituan, AIA, Xiaomi) carry enough weight for one
name to explain a 1% day. Check their moves first.
What is causing the S&P 500 futures selloff overnight?
Wed 4 Nov 2026
Futures · US equities · elections
Short answer. The US midterm count pointed to a Democratic sweep of Congress, read as a threat to the AI data center buildout
and to Big Tech. An index concentrated in AI names, an AI trade already fragile and thin overnight trading turned that into a fall of
about 1.2% to 1.3% in S&P 500 futures, with Nasdaq 100 futures down about 2.2%.
1. When does a futures selloff happen?
When a trigger meets a vulnerable market. A trigger alone gives a dip; a trigger meeting the conditions below gives a selloff.
2. The conditions
A repricing catalyst: news that changes the earnings path, the discount rate or the policy backdrop.
Concentration: the index is heavy in a few AI and megacap tech names, so one theme moves the whole index.
Fragile positioning: a crowded, richly valued trade falls harder on bad news than it rises on good.
Thin liquidity: outside US cash hours futures are the only hedge, so each sale moves the price more.
Rising volatility: the VIX through 20 sets off hedging and volatility-targeting funds selling futures.
No cushion from rates: yields falling out of fear do not support stocks.
3. What happened, condition by condition
Catalyst. Early Democratic Senate wins (North Carolina flipped, Georgia held, Texas Senate won), US media projected a
Democratic House, prediction market odds for both chambers above 99%. In Texas, a Democratic governor candidate had called for an
immediate data center moratorium; Texas holds about 27% of US data center gigawatts (Wells Fargo estimate). That race was still
disputed in early reports.
Concentration. Nasdaq 100 futures −2.2% against Dow futures −0.8%. Microsoft, Amazon and Nvidia fell after hours, CoreWeave
about −6%, Tesla more than −4%. Fears named: data center limits, tighter AI and Big Tech rules, fewer tax breaks, more bank scrutiny.
Fragile positioning. AI stocks had already pulled back for weeks on slowing data center spending. The tell: AMD beat
(adjusted EPS 2.09 against 1.95 expected) and jumped about 7% after hours, then faded to about +3%. Good news could not hold.
Thin liquidity. Futures went from about +0.2% around 6 pm to about −1.3% by late evening US time, all with the cash market shut.
Volatility. VIX futures above 20, about 20.9.
No rate cushion. The US 10-year Treasury yield fell about 5 to 6 bp to about 4.90% and the dollar index about 0.4%: a safety
bid, so the shock was to earnings and policy, not rates.
Spillover: the Nikkei about −3% after its holiday, the KOSPI from about +3% to about −1.6%, European futures about −1.4%.
Not the driver: oil; Brent was choppy near a four-week low.
4. Perspective
Election-night moves are often short-lived. The S&P 500 rose after each of the last 11 midterms, about 13.7% on average one year out (CNBC).
What to watch: the final Texas governor result, the size of the Senate majority, whether the AI capex names steady at the cash open.