How To Invest In Future Market, And Gain Significant Profit?
Future market is central financial exchanges where people can trade Contracts
, that is, buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of contracts fall into the category of derivatives. This named "derivatives" because the value of these is derived from another asset class, and the main thing is in a contract to Market is all shares are in lot form.
Future Contract:
In finance, a future contract is a standardized contract between two parties to buy or sell a specified benefit of standardized quantity and quality for a price agreed upon today (the future price or strike price) with delivery and payment occurring at a specified future date, the delivery date. The contracts are negotiated at a future exchange, which acts as an interface between the two parties. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to sell the benefit in the future, the "seller" of the contract, is said to be "short". The terminology reflects the expectations of the partiesthe buyer hopes or expects that the asset price is going to increase, while the seller hopes or expects that it will decrease in near future.
While the future contract specifies a trade taking place in the future, the purpose of the futures exchange institution is to act as intermediary and minimize the risk of default by either party. Thus the exchange requires both parties to put up an initial amount of cash, the margin. Additionally, since the future price will generally change daily, the difference in the prior agreed-upon price and the daily future price is settled daily also. The exchange will draw money out of one party's margin account and put it into the others so that each party has the appropriate daily loss or profit. If the margin account goes below a certain value, then a margin call is made and the account owner must replenish the margin account. This process is known as marking to market. Thus on the delivery date, the amount exchange is not the specified price on the contract but the spot value.
A closely related contract is a forward contract. A forward is like future in that it specifies the exchange of goods for a specified price at a specified future date. However, a forward is not traded on an exchange and thus does not have the interim partial payments due to marking to market. Nor is the contract standardized, as on the exchange.
Unlike an option, both parties of a future contract must fulfill the contract on the delivery date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position can close out its contract obligations by taking the opposite position on another future contract on the same asset and settlement date. The difference in future prices is then a profit or loss.
About Margin:
Margin requirements are reduced in some role for financers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position.
Clearing margin is financial security to ensure that companies or corporations perform on their customers open future and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of future and options contracts are required to deposit with brokers.
Customer margin within the future industry, financial guarantees required of both buyers and sellers of future contracts and sellers of options contracts to ensure fulfillment of contract obligations. Future Commission Merchants are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance bond margin. Initial margin is the equity required to initiate a future position. This is a type of performance bond. The maximum exposure is not limited to the amount of the initial margin however the initial margin requirement is calculated based on the maximum estimated change in contract value within a trading day. Initial margin is set by the Market.
Advantages and Disadvantages of Future Market:
Advantage
The Broker charges for futures trading are small as compared to other type of investments.
Futures contracts are highly financial instruments which permit achieving greater gains using a limited amount of invested funds or Cost.
Position can be reversed easily.
Gain to high liquidity.
Disadvantage:
It offers only a partial Finance.
It is subject to basis risk which is associated with imperfect Finance using futures.
Future contract is standardized product and written for fixed amounts and terms.
Leverage can make trading in future contracts highly risky for a particular strategy.
by: moneymaker
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