We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.

Key takeaways from this chapter

1. The forwards and futures markets give you a financial benefit if you have an accurate directional view of an asset’s price.
2. The Futures contract is an improvisation over the Forwards contract.
3. The Futures price generally mimics the underlying price in the spot market.
4. Unlike a forwards contract, the futures contract is tradable.
5. The futures contract is a standardized contract wherein all the agreement variables are predetermined.
6. Futures contracts are time-bound, and the arrangements are available over different timeframes.
7. Most of the futures contracts are cash-settled.
8. SEBI in India regulates the futures market.
9. The lot size is the minimum quantity specified in the futures contract.
10. Contract value = Lot size times the Futures price.
11. To enter into a futures agreement, one must deposit a margin amount, a sure % of the contract value.
12. Every futures contract has an expiry date beyond which the agreement would cease. Upon expiry, old contracts terminate, and new ones are created.