What is future trading
In Future trading is a forward contract which can be traded between the two parties and the parties initially agreed to buy and sell the assets at an agreed price, the delivery and the payments occur in the future and its a derivative product.
It is a marketplace between the buyer and the seller and these contracts are negotiated at future exchange were a buyer is a long position holder,and the selling party is a short position holder.
Financial future introduced in 1972 in which currency future , stock market index future, and the interest future that have played an important role in the overall future market. Future Trading came in India in the early 19th century in the Marwari businessmen commodity. Bombay Cotton Trade Association is the first contract which was established in 1875 and is the organized future contract.
The exchange traded contract are traded while they exchange the assets which would buy or sold in how, when, where and in what quantity it should be delivered. For Example in a contract if a delivery of oats 1 par value but it permits delivery of oats 2 for the certain penalty per unit.
On the first day of the market opens the trading of new future contract exist. They are not issued for other securities but they create when open interest increases and also it destroy when open interest decrease in which traders resell for reducing their long position and they re-buy for reducing the short position.
Speculators on future price fluctuation which do not intend to make or delivery which should take care to zero their position for prior contract expiry. These contracts are not between the original buyer and the original seller but it holds the expiry and the exchanges.
Example : If an oil producer plans to produce 1 million barrels of oil for delivery in 365 days, and its current price is $50 per barrel. The producer produce the oil, they gamble it, and they sell it at the current market prices. They locked at the guarantee sale price while entering in the future market. This model is used as the account the current spot price, convenience yields, dividends, dividend yields. Oil future contracts are priced for 1 year is $ 53 per barrel. The producer is delivering 1 million barrels oil ant its gives guarantee to receive $53 million. Spot market price received $53 price per barrel at the same time.
The future contract is categorized into hedgers and speculators. There are many assets which have future contracts available they are of the dozens of stock market indices and also on the currency pairs and the interest rates. There are many contracts which are available for every commodity. For example, natural gas, industrial metal, precious metal, seeds, livestock, grains, these all are tradable and available on future contract.
Contract Month : Future contract is as same as with the options market in which they are valid in a specified period of time. These contracts are delivered and it will be either expired. In Contract which delivery takes place in the month, and also the contract month is also called as the delivery month.
Option on Future : An option on the future contract which gives the holder for investing and the right to enter on the specified future contract. The initial holder of the option which would enter into the contract and buy the assets on the future price where as the investors also enter into the future contract as the short and sell the assets at the specified price in the future date.
In the future market buying and selling it may seem as risky and complicated. It is a global market place to buy and sell commodities for spot or by the future delivery. Future market is the one which buys and sell future contracts as a price per unit, quality, type and quantity of the commodity as when the contracts expire. The two players are hedgers and speculators of the future market in which hedgers gives its efforts in minimizing the risk or to avoid rising and declining prices whereas speculators they try to gain profit from the risk by buying or selling.
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