FUTURE CONTRACT

Future contracts are exchange traded contracts with an agreement to buy or sell a specified quantity and quality of an asset for the price agreed upon by buyer and seller at a designated future date.

future contracts have certain standardised specifications –

  • the quantity of the underlying
  • the quality of the underlying
  • date and month of delivery
  • location for settlement
  • units of price quotation

Features of future contracts –

  • they are traded in only organised stock exchange.
  • it requires stated standardised contract terms specified by the exchange.
  • it requires marginal payments and daily settlement.
  • future contracts can be closed very easily.
  • these are executed on expiry date or maturity date.
  • future contracts are expressed in currency unit and minimum price movement is called tick size.