What Are Futures Contracts, Stock Futures and Index Futures?

by Vinaya HS on July 29, 2017

in Finance

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A futures contract is nothing but a systematic contract between the two consecutive parties for the trading of an asset at a reasonable price and a specified date. The seller delivers the repressed, and the client or the buyer takes the delivered asset and pay the amount. The price, in which the deal gets cracked, is known as future price or the delivery price. As the future’s price relies on the asset’s price, it is a derivative instrument. A future contract is quite equivalent to that of a forward contract. The market of the futures contract has evolved to minimize the state of the asset along with the counter party risk of the forward contract.

What Are Stock Futures?

A stock future is a contract that needs to be sold or purchased at a specific amount for a specific price at a standardized date. In the recent years, the stock market has been rapidly changing its position. The stock futures are the best concepts in protecting your investments so that not a single market fluctuation varies your portfolio. Nifty option chain is a listing of all the call and put option strike prices including their premiums for a particular specified maturity period. Most of the online brokers display their options in the option chain form.

How Do Stock Futures Work?

To understand the concept of stock futures, imagine you own a popcorn company, and you need to buy fresh corn to make your product. The price of the corn fluctuates on every business day, and you want to make a good deal at the lowest price possible to make the most profit while selling your finished product. In the process, you realize that the corn price might be different in today’s market that it was a year from now. So, here you enter into a futures contract with a nearby farmer to purchase his corn at a reasonable price at a certain fixed date. The farmer is not ready to sell his corn at such a low price that is below the current market value. So, you have to agree with making a fair price deal ensuring none of you get pounded by the market fluctuations, and both of you are satisfied with the transaction in a year.

Significance Of Stock Futures

The two parties in the stock futures decide to make a deal to buy or sell a specific amount of stock at a reasonable price that doesn’t affect any of them financially, at a future date. The difference between the tangible commodities such as corn, wheat, pork bellies and the stock futures is that the stock future contracts are never set till the expiration date. These contracts are purchased and are eventually sold on the futures market.

Understanding The Concepts Of Index Futures

Index futures are an investment in which the buyers and sellers deal in paying or receiving the payment in the future for the money value of an underlying stock index. As the nifty option chain nears its date of expiration, the time value edges closer to $0, and the intrinsic value represents the difference between the repressed security price and the contract’s strike price.

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