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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.
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∙ 12y ago
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Can you have a Future on an Option on a Future?
When you're dealing in Over the Counter derivatives you can have anything you want. I can't imagine why you'd want a contract that obligates you to buy another futures contract on a date certain, though.
What are derivative trades?
Derivatives are financial instruments that derive their price and values from their underlying asset. Examples of derivatives are options and futures. Both options and futures derive their value from their underlying stocks. Trading derivatives means buying options or futures instead of the stocks itself mainly for leverage.
What statement best explains what a futures contract is?
A futures contract is a contract setting the price and date for a commodity purchase.
What is types of derivatives?
The common derivatives in the market are futures contracts, options and swaps. A futures contract is a contract between two or more parties to trade a certain asset at a specified date in the future at the price agreed on today. Swaps are contracts to exchange cash on or before a certain future date. Cash is exchanged based on the underlying value of commodities, stocks, exchange rates or other such assets Options give the owner the right but not the obligation to buy or sell an asset. The sale takes place at a certain price called the strike price. This price is specified when the parties enter into the contract. This contract will also specify a maturity date. There are five major classes of underlying assets. These are interest rate derivatives, foreign exchange derivatives, credit, equity and commodity derivatives.
How do you purchase a futures contract?
You purchase a futures contract by first opening a futures trading account, which is a margin account, with a futures broker. Once that is done, simply choose the specific futures contract you wish to buy and then pay its "Initial Margin", which is a deposit needed to start a futures trade.
What type of company is the Commodity Futures market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
What are the release dates for Futures - and Derivatives 2007?
Futures - and Derivatives 2007 was released on: USA: 28 July 2007 (Wine Country Film Festival) USA: June 2008 (Brooklyn International Film Festival)
What do equity derivatives refer to?
Equity derivatives refer to the options and futures one has when trading or selling off different equitable assets. Equity options are the most common derivatives that there are.
How many bushels of wheat in a futures contract?
A wheat futures contract covers 5000 bushels of whatever wheat (there are different kinds) is specified in the contract.
What type of market is the commodity market?
there are two types that are part of the commodity futures market. A normal futures market is one where the price of the nearby contract is less than the price of the distant futures contract. The other is an inverted futures market, the price of the near contract is greater then the price of the distant contract.
What are the two major financial market-traded forms of financial derivatives?
Futures and options
When did trading begin in foreign currency futures?
In 1972 it launched a contract in foreign currency futures.
