A futures contract is a type of financial contract
where two parties agree to transact a set of financial instruments for future
delivery at a particular price. On the NSE, where most Futures volume is
traded, a trader can trade Index Futures, Stock Futures, and Currency
Futures.
The most common Futures contract traded in India are
Nifty Futures.
A better understanding of Futures can be explained
through an example. Suppose Raj wants to purchase a computer which costs Rs.
20,000, but he is short on cash and decides to purchase it one month from
today. However, Raj feels that one month from now, the price of the computer
will increase. Therefore, Raj is puzzled: how do I purchase the computer today
and lock in the price of Rs. 20,000 but get delivery of the computer in 30
days...
Raj enters into a contract with the computer
manufacturer: one month from today, Raj will purchase the computer for Rs.
20,000 and the manufacturer will deliver the computer to Raj. Raj is being
cautious and agrees to purchase the computer at today's price, 30 days from
now. Thus, as defined above, it is a contract with a specified date and price
for delivery. There is no cash exchanged between the parties when the contract
is initiated.
Futures trading, therefore, is the buying and selling
of these contracts.
This is very helpful, thanks!
ReplyDeleteit makes me feel less crazy and control for trading
Great outlook ! Next time I will refer it before I plan my trade for next day.
ReplyDeleteNice blog & post
ReplyDeleteMoney Creators
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