What Is Futures Trading
Synopsis
When it comes to finance, the standardized contract between two consenting parties is part of the exchange of a specific asset which has been certified for its quantity and quality for a price agreed. Both the price and the delivery are specified and the future delivery date is noted, thus the contracts are considered future exchanges.
Futures
In the futures trading both the buyer and the seller have opposing intentions in the idea behind the transactions. The seller hopes the price will drop after the transaction has been concluded where as the buyer hopes for the rise in the price to ensure a profit from the transaction.
It should be noted that all the transactions need not always be about commodities. There are also underlying assets to a futures contract which may include financial futures, securities or financial instruments and intangible assets or referenced items such as stack indexes and interest rates.
Futures trading help to facilitate the transactions of the exchange institution as intermediary while minimizing the risks of default by either party within the transaction frame.
The term margin refers to the initial amount of cash required by both parties to be deposited and settled on a daily basis as dictated by the fluctuations of the market sentiments.
This process is done on an automatic basis where the changes in pricing is taken form one account and deposited into the other account between buyer and seller. When the said margin goes below a certain stipulated amount then there is a call to top up the deleted amount in order to keep the transaction account running.
In the futures trading there is also another term popularly used which signifies another type of transaction. This is called the forward contract. This forward contract is like a futures one but has very specific definitions in each category. All prices and commodities and time frames are locked and thus there is no need for the margin style settlement practice.
