What
Is A Forward Contract?
A forward contract is a customised contract between two
parties to buy or sell an asset or security at a specified price on a future
date. This contract, which is agreed and signed on by both the parties, is a
forward contract. This contract helps ensure that both parties have a buffer
against volatility in the price movement of the asset or security.
Standardisation Of Contracts And Role Of Exchanges
Standardisation Of Contracts And Role Of Exchanges
A forward
contract is the basis for a futures contract. But for it to work, a few
conditions need to be met. Agreement on quantity and price of a security is
one. That the contract will be upheld by the parties involved is another. This
is where stock exchanges come into play. This video explains the need to standardise
contracts and the role an exchange plays in creating markets for such
derivative contracts.
What Is A Futures Contract?
What Is A Futures Contract?
For an exchange to standardise
and facilitate trade of futures contracts, it needs to determine: The size of
contract. Date of contract settlement. The advance sum expected from parties
trading in the instrument. The price is agreed upon by participants involved in
the transaction.
The Long And Short Of Derivatives
The Long And Short Of Derivatives
In the derivatives market,
to buy a contract is to ‘go long’ and to sell a contract is to ‘go short’. But
why use different terms when they mean the same thing? One word- leverage.
Premium
And Discount In Futures The price at which a futures contract trades is
invariably different from the price of its its underlying asset in the cash
market. It’s often higher than the spot, but it sometimes trades lower too.
What Is Expiry?
What Is Expiry?
Expiry is the date up to which the agreement
is valid or the last date that a trader can hold the contract. Beyond this
date, the trade ceases to exist and the trader cannot hold that contract
anymore.
Open Interest And Market-
Open Interest And Market-
Wide Position Limit Open interest is
the number of contracts or positions outstanding in futures and options on an
exchange. It may be denoted in a number of contracts or the number of shares.
It's computed by summing up net open positions in the derivative of an index or
stock. These positions must be closed on expiry if not squared off earlier.
What Is Mark To Market?
What Is Mark To Market?
To mark to market is to account for
profit and loss incurred in holding a position in the futures contract on a
periodic basis, in this case daily. The profit or loss is adjusted to the
margin paid by participants to hold a position in the futures contract.
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