Futures

Introduction

• Futures are a type of financial derivatives or financial agreements or contracts traded in the exchanges. 
• They are financial contracts to  buy or sell a specified quantity of financial assets or commodity at a future date at a price agreed upon by the seller and buyer.

Features of Futures Contracts

• Futures contracts are liquid as they are standardized and traded in exchanges.
• Futures contracts being traded on exchanges are standardized.
• Futures allow hedging against adverse price changes.
• Futures make transactions across time easier, speedier, and less costly.
• Futures help in price discovery.
• A futures contract allows an investor to speculate on the price of a financial instrument or commodity.

Important Terminologies

• Spot Price: It is also referred to as cash price or the current price. It is the price of a good for immediate delivery.
• Basis: It is the difference between cash price and the futures price of a particular good.
• Spread: It is the difference between two futures prices.  Spreads are important for speculators.