Intraday Cash Market
Intraday Stock Cash
Kautilya arthashastra dated back to 320 BC described the preliminary future contract concept in India. The script elaborated the pricing mechanism of the standing crops ready to be harvested in future. This concept provides a security to the people engaged in primary sector, irrespective of the product failure in future.
Future derivative is an advanced version of forward market where the traders traded through negotiations on a one to one basis and over contracts. No delivery concept exists here.
This complete future derivative concept can be understood by following example.
Suppose,
On 29 May, 2017, T1 and T2 enter into an agreement that T1 will buy 100 kg of potatoes from T2 at the current price of 100 Rs per 5 kg i.e. 20,00 Rs in total irrespective of the future prices. The expiry date of the contract is decided to be 29 July,2017. T1 agreed because he thinks there will be hike in price. T2 agreed because he thinks there will be fall in price.
Both are correct as per their point of views.
No one can give exact guarantee of sure shot success but, one will bare loss, one will gain profit or there will be no loss- no profit.
Future contracts are traded in the exchange unlike forward contract where it is traded over OTC. They are standardized and there is no counter party risk as there are a number of traders on the exchange with varied point of views. It is regulated by SEBI. If one wants to change his point of view in the course of contract, it is easily transferable and hence, easily tradable. These contracts are cash settled I.e. the amount of profit is gained, only that amount is transferred by the party who owes the loss.
Future markets give a good financial benefit if one has accurate directional view on the price if any asset.
Future derivative is an advanced version of forward market where the traders traded through negotiations on a one to one basis and over contracts. No delivery concept exists here.
This complete future derivative concept can be understood by following example.
Suppose,
On 29 May, 2017, T1 and T2 enter into an agreement that T1 will buy 100 kg of potatoes from T2 at the current price of 100 Rs per 5 kg i.e. 20,00 Rs in total irrespective of the future prices. The expiry date of the contract is decided to be 29 July,2017. T1 agreed because he thinks there will be hike in price. T2 agreed because he thinks there will be fall in price.
Both are correct as per their point of views.
No one can give exact guarantee of sure shot success but, one will bare loss, one will gain profit or there will be no loss- no profit.
Future contracts are traded in the exchange unlike forward contract where it is traded over OTC. They are standardized and there is no counter party risk as there are a number of traders on the exchange with varied point of views. It is regulated by SEBI. If one wants to change his point of view in the course of contract, it is easily transferable and hence, easily tradable. These contracts are cash settled I.e. the amount of profit is gained, only that amount is transferred by the party who owes the loss.
Future markets give a good financial benefit if one has accurate directional view on the price if any asset.
Comments
Post a Comment