0
Futures Contract:
A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values.
An Example of a futures contract would be an agreement to 100 tonnes of Steel at Rs. 10000/- per tonne at some date say in December 2008. If no interim payments are made and if the price of Steel moves violently, a considerable credit risk could build up. To avoid this a margin system is used by the exchanges. As per the margin system, both parties must deposit a small sum with the exchange. This amount will be a small percentage of the total contract. This amount is called the initial margin. As the steel value changes, the contract value also changes. If the contract value changes, the margin must be topped up by an amount corresponding to the change in price of steel. The margin money is the property of the person who deposits it and would be returned to them if the contract gets cancelled/completed.
Characteristics of Futures contract:
1. They are traded in organized exchanges
2. Credit risk is eliminated with the margin system. Both parties deposit a portion of the contract with the clearing house.
3. Both the buyer and seller are bound by the contract terms and are expected to honour their end of the contract.
Wiki User
∙ 15y ago
Add your answer:
Earn +20 pts
Changes in stock market and universal stock futures?
ttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttttt
How does a futures market differ from a stock market?
http://adf.ly/YrBrw
What has the author Chengxi Yao written?
Chengxi Yao has written: 'Stock market and futures market in the People's Republic of China /by Chengxi Yao' -- subject(s): Futures market, Stock exchanges
Is it beneficial to use futures trading brokers to get an advantage in the stock market?
Futures trading brokers can be helpful if you are looking to get ahead in the stock market. They can offer the inside track to high yield investments.
What does the term secondary market mean?
The term secondary market refers to a financial market where stock, bonds, and futures are sold. A secondary market also refers to used goods and objects.
What is the risk level of stock-futures investments?
The risk level of stock-futures investments is generally high. Stock futures are derivative contracts that derive their value from an underlying stock. As such, they are subject to market volatility, price fluctuations, and other risk factors associated with the stock market. Investors should carefully assess their risk tolerance and make informed decisions before investing in stock futures.
What is the meaning of IV or OIV in relation to Futures and Options market?
oiv means in stock market
What has the author B Thomas Byrne written?
B. Thomas Byrne has written: 'The Stock Index Futures Market' -- subject(s): Stock index futures
What type of stock is traded on the FTSE futures market?
The FTSE Futures Market trades a veritable cornucopia of stocks. The most popular items traded at FTSE include many different commodities and stock options.
How much is gold trading for on the stock market?
A commodity such as gold does not trade on the "stock" market. Gold and other commodities trade on the futures market. Currently it is trading as much as $1798.40.
Is broccoli traded on the stock market?
No, broccoli is not traded in the stock market. There are commodities traded in the futures exchanges, such as wheat, corn, canola oil, and others, but not broccoli.
Where could one find SandP's futures in the stock markets?
Stock market quotes are available in the local newspapers, online and on television. These are only a few examples of where one may find S&P futures quotes.
