Tuesday, July 10, 2018

Futures Contracts

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 Futures are exchange traded derivatives that enable buying or selling an underlying asset on a future date, at an agreed price.

 The terms of a futures contract like trading units, minimum order size and quality are standardised to facilitate trading on exchanges. 

The exchange acts as a legal counterparty to the buyer and the seller. Both parties have to pay a margin to the exchange to ensure that they honour the contract.


 Since the futures prices are bound to change every day, the differences in prices from the margin is settled on a daily basis. 

Futures are used by hedgers, to reduce risk and speculators, who bet on the future price of the underlying asset.

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