FUTURE MARKET

abhishreshthaa

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FUTURE MARKET:

  • Futures contracts on commodities have been traded for a long time. In USA, such contracts began trading on Chicago Board of Trading (CBOT) in 1860's.

  • In the past three decades, financial futures contracts have been evolved.

  • They encompass a variety of underlying assets -- securities, stock indices, interest rates & so on.

  • It was in America only that a formal beginning was made, when the Kansas City Board Of Trade (KCBT) introduced stock index futures contracts with the "Value line Index" serving as the underlying index.

INTRODUCTION

  • A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

  • Futures contracts are exchange based instruments, which are traded on a regulated exchange. In general, futures contracts are related to various underlying assets such as commodities, market indices, interests and swaps.


INDEX FUTURES IS A FUTURE CONTRACT WHERE UNDERLYING IS CASH MARKET INDEX.

  • A stock index represents change in the value of a set of stocks that constitute the index over a base year.

  • An index future is a derivative whose value is dependent on the value of the underlying asset (e.g. BSE Sensex, S&P CNX NIFTY). While trading on index futures, an investor is basically buying and selling the basket of securities comprising an index in their relative weights.


Terms Used In Future Market:

  • Contract Size - The value of the contract at a specific level of Index. It is Index level * Multiplier.

  • Multiplier - It is a pre-determined value, used to arrive at the contract size. It is the price per index point.

  • Tick Size - It is the minimum price difference between two quotes of similar nature.

  • Contract Month - The month in which the contract will expire.

  • Expiry Day - The last day on which the contract is available for trading.

  • Open interest - Total outstanding long or short positions in the market at any specific point in time. As total long positions for market would be equal to total short positions, for calculation of open Interest, only one side of the contracts is counted.

  • Volume - No. of contracts traded during a specific period of time. During a day, during a week or during a month.

  • Long position- Outstanding/unsettled purchase position at any point of time.

  • Short position - Outstanding/ unsettled sales position at any point of time.

  • Open position - Outstanding/unsettled long or short position at any point of time.

  • Physical delivery - Open position at the expiry of the contract is settled through delivery of the underlying. In futures market, delivery is low.

  • Cash settlement - Open position at the expiry of the contract is settled in cash. These contracts are designated as cash settled contracts. Index Futures fall in this category.
 
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