We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- The forwards and futures markets give you a financial benefit if you have an accurate directional view of an asset’s price.
- The Futures contract is an improvisation over the Forwards contract.
- The Futures price generally mimics the underlying price in the spot market.
- Unlike a forwards contract, the futures contract is tradable.
- The futures contract is a standardized contract wherein all the agreement variables are predetermined.
- Futures contracts are time-bound, and the arrangements are available over different timeframes.
- Most of the futures contracts are cash-settled.
- SEBI in India regulates the futures market.
- The lot size is the minimum quantity specified in the futures contract.
- Contract value = Lot size times the Futures price.
- To enter into a futures agreement, one must deposit a margin amount, a sure % of the contract value.
- Every futures contract has an expiry date beyond which the agreement would cease. Upon expiry, old contracts terminate, and new ones are created.