theirstaxblog.com

Future is a well set process to buy and sell commodity of a quality on a particular date at predefined price. The contracts are traded on future exchange . Future contracts is like direct securities like stocks , bonds rights and warrants. They are still securities though they are derivative contract. The price determined by equilibrium between the force of supply and demand among competing buy and sell orders on the exchange at the time of purchase or sale of the contract. Future contracts are treated as traditional commodities for a financial future. Currency is termed as the underlined asset, security, currency, financial future which is intangible asset , stock indexes and interest rates.

When we refer to the future date we are referring to the delivery date or the final settlement date. The settlement price for the day of business on the exchange is the price of the future contract at the end of the days trading session. Under the terms of the future contract the holder is obligated to make or take delivery whereas in an option gives the buyer the right to come to a position which was previously held by the seller of the option.  The owner of option may exercise the contract but both parties of the futures contract must fulfil the contract of the settlement date. The asset is delivered to the buyer in case it is a cash settled futures contract. The cash under these cases is transferred from the future trader to the one w To exit the commitment ho made a profit. The future option can be closed effectively before the settlement date by selling a long position or buying back the short position.

ETF's are also known as future contracts. The margin requirement and the crucial mechanism for settlement is set by the clearing house.

Future and forward contract are both contracts which need to deliver an asset on a future date at a pre arranged price. The only difference is future are exchange traded and forwards are traded over the counter. Futures are standardised and face an exchange and on the other hand forwards are customised and face a non exchange counter party.

 

Tags: Futures options trading, online options trading, option trading, option trading strategies, option trading system, options trading