Introduction 2 Futures Trading
AJAY BHARTI
- Futures
- contracts
- are
- used
- for
- a
- variety
- of
- purposes,
- including
- hedging
- against
- price
- fluctuations,
- speculating
- on
- the
- direction
- of
- prices,
- and
- arbitrage
- (taking
- advantage
- of
- price
- differences
- in
- different
- markets).
- They
- are
- used
- in
- a
- wide
- range
- of
- markets,
- including
- commodities
- (e.g.
- oil,
- wheat),
- currencies,
- and
- financial
- instruments
- (e.g.
- interest
- rates,
- stock
- indices).
- In
- a
- futures
- contract,
- one
- party
- (the
- "buyer")
- agrees
- to
- purchase
- the
- underlying
- asset
- at
- a
- future
- date,
- and
- the
- other
- party
- (the
- "seller")
- agrees
- to
- deliver
- the
- asset
- at
- that
- time.
- The
- buyer
- pays
- a
- small
- portion
- of
- the
- total
- purchase
- price
- upfront
- (called
- the
- "initial
- margin")
- and
- agrees
- to
- pay
- the
- remainder
- (the
- "settlement
- price")
- on
- the
- delivery
- date.
- The
- initial
- margin
- is
- typically
- a
- fraction
- of
- the
- settlement
- price
- and
- is
- used
- to
- cover
- the
- buyer's
- potential
- losses
- if
- the
- market
- moves
- against them.
