Futures options trading: Know Facts About It
Dec0
The advance purchase of the commodity in the form of contract is called future contract. The contracts are traded on future exchange . Future contracts is like direct securities like stocks , bonds rights and warrants. They are known as securities on derivative contract. The contract is decided based on the requirements of supply and demand in the market. Future contract may be treated as tradition commodities for financial future. Currency is termed as the underlined asset, security, currency, financial future which is intangible asset , stock indexes and interest rates.
The future date of delivery is referred to as the 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.A future contract gives the holder the obligation to make or take delivery under the terms of the contract whereas in option grants the buyer the right but no obligation to establish a position previously held by the seller of the option. Both parties have the obligation to fulfil the contractual obligation of the settlement date. In case of a cash settled future contract the asset is delivered to the buyer. Under such case the cash is transferred from the future trader to the one who sustained the loss to the one who 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.
Asset need to be delivered at a pre arranged price in both future and forward contract. 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.
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Futures Trading – What You Should Know
Jun0
Futures contracts as they relate to finance is a simple contract devised to allow someone to ultimately purchase or sell specific commodities that will be delivered at some future time. Generally there are certain dates and time frames which must be met in order to be a valid contract.
These types of transactions are never offered on the usual stock market but you would find them on what is commonly known as the futures exchange. They are not considered to be securities in the strictest sense of the word as stocks or bonds may be. They are a type of derivative.A futures options contract or a commodity option is a derivative as well.
The actual prices associated with the various commodities vary according to the supply and demand. If the pork belly crop is bad this year the prices will likely be high while an over abundance of coco would result in a lower than normal price. The future date is known as the delivery date while the daily bid on the exchange would be the settlement price.
In a nutshell in futures trading, what a contract states is that the holder can take delivery of the commodity at some future date however the futures must be complied with by the settlement date. At the settlement date the seller will deliver the asset to the buyer whether it is coco or pork bellies or whatever. In order to fulfill your obligation prior to the established settlement date you must offset your position by selling if you purchased the futures or buying back if you had a previous short position which ultimately allows you to balance everything out.
An interesting side note here is that if you purchased a futures contract and do nothing what so ever and the settlement date arrives you could end up with a yard full of assets that you really did not want. Unlike stocks and bonds we are talking real time products here.
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