Saturday, 23 May 2020

Future Contracts


Future Contracts

? The futures market is a global market place, initially created as a place for farmers and
merchants to buy and sell commodities for either spot or future delivery.
? This was done to lessen the risk of both waste and scarcity.
? Rather than trade in physical commodities, futures markets buy and sell futures contracts,
which state the price per unit, type, value, quality and quantity of the commodity in
question, as well as the month the contract expires.
? The players in the futures market are hedgers and speculators.
? A hedger tries to minimize risk by buying or selling now in an effort to avoid rising or
declining prices.
? Conversely, the speculator will try to profit from the risks by buying or selling now in
anticipation of rising or declining prices.
? Futures accounts are credited or debited daily, depending on profits or losses incurred.
? The futures market is also characterized as being highly leveraged due to its margins;
although leverage works as a double-edged sword.
? It's important to understand the arithmetic of leverage when calculating profit and loss, as
well as the minimum price movements and daily price limits at which contracts can trade.
? "Going long," "going short," and "spreads" are the most common strategies used when
trading on the futures market.

Commodity Future Contract: An agreement to buy or sell a set amount of a commodity at a
predetermined price and date.
Currency future: Currency future is the price of a particular currency for settlement at a specified
future date.
Mark to Market: The accounting act of recording the price or value of a security, portfolio or
account to reflect its current market value rather than its book value.
Offset: Elimination or reduction of a current long or short position by making an opposite
transaction of the same security.
Portfolio: The group of assets - such as stocks, bonds and mutual funds - held by an investor.

No comments:

Post a comment