Future trading is a forward contract that can be traded between two parties. The parties originally agreed to purchase and sell assets at a agreed price. Delivery and payments will occur in the future. It’s a derivative product.
It’s a marketplace between buyers and sellers. These contracts are negotiated at future trade where a buyer holds a long position and the selling party holds a short position.
In 1972, financial future was introduced. These included currency future, stock market index future and interest future. They all play an important part in the overall future market, or mcx tips. Future trading was introduced in India in the early part of the 19th century by Marwari businessmen. The first organized future contract was the Bombay Cotton Trade Association, which was established 1875.
While the exchange traded contract is traded, they exchange assets that would be bought or sold. If a contract allows delivery of 1 par value oats, it also permits delivery of 2 oats for a certain penalty per unit.
The trading of future contracts is open on the first day of market openings. They are not intended for other securities, but they can create open interest when it increases and destroys when it decreases. Traders can resell to reduce their long position or re-buy to reduce the short position.
Future price fluctuations are speculations that do not intend to make or deliver. Speculators should ensure they zero their positions for the expiry of prior contracts. These contracts do not belong to the original buyer or seller, but they hold the expiry and exchanges.
Exemple
A producer of oil plans to produce 1,000,000 barrels of oil in 365 days. The current price for oil is $50 per barrel. Producers produce the oil and then gamble it to sell it at current market prices. They entered the future market and locked in at the guarantee price. This model takes into account the current spot prices, convenience yields and dividends. Future oil contracts are priced at $ 53 per barrel for 1 year. Producer is expected to deliver 1 million barrels of oil and will guarantee $53 million. The spot market price was $53 per barrel.
Future contracts can be classified as hedgers or speculators. Many assets have future contracts. They include the many stock market indices, as well as the currency pairs and interest rates. Many contracts are available for each commodity. These commodities include natural gas, precious metals, industrial metals, seeds, livestock and grains. They are all tradable, and can be negotiated for future contracts.