In a futures contract there is
an agreement to buy or sell a specified quantity of financial instrument in a
designated Future month at a price agreed upon by the buyer and seller.
A Future contract is evolved
out of a forward contract and posses many of the same characteristics. In
essence, they are like liquid forward contracts. Unlike forward contracts
however, futures contracts trade on organized exchanges called futures markets.
The characteristics of a future
contract are
- Standardization
The future contracts are
standardized in terms of quantity and quality and future delivery date.
- Margining
The
other characteristics of a futures contract is the margining process. The
margin differs from exchange to exchange and may change as the exchange’s
perception of risk changes. This is known as the initial margin. In addition to
this there is also daily variation margin and this process is known as marking
to market.
o
Participants
The
majority of users are large corporations and financial institutions either as
traders or hedgers.
o
Futures
are exchange traded
1.
In futures market there is
availability of clearing house for settlement of transactions.
2 Comments
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ReplyDeleteNice post. Thank you for sharing above information, As the main purpose of future and option trading is to reduce risk or future price uncertainty through hedging and arbitraging.Equity tips
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