ravisupreme

In futures trading, there is usually a contract, which is essentially an agreement between two parties to buy or sell an underlying asset at a certain time in the future at a certain price. A futures contract usually has a standardized date and month of delivery, quantity and price.

Futures trading is usually carried out on a futures exchange. Futures differ from forwards in terms of margin and delivery requirements. In order to facilitate liquidity in futures trading, the futures exchange specifies certain standard features of the contract.

In futures trading, a futures contract may be offset prior to maturity by entering into an equal and opposite transaction. More than 99% of transactions in the futures trading are usually offset in this manner. The date specified in the options/futures contract is known as the expiration date.

The Futures price is the price at which the futures contract trades in the futures market. The expiration date for all contracts in futures trading is usually the last Thursday of the respective month. Three series of futures contracts are available and have one-month, two-months and three-months expiry cycles. On the Friday following the last Thursday, a new contract having a three-month expiry is introduced for trading.

The most important role that futures trading performs is in aiding the process of proper price discovery. Since several different types of players are engaged in trading the futures.

Apart from aiding price discovery, futures contracts also aid in the hedging of price risk in a commodity. Futures contracts are useful for the producer because he can get an idea of the price likely to prevail and thereby help them quote a realistic price and hedge risk.