Stock futures

Stock futures

A futures contract is the obligation to sell or buy an asset at a later date at an agreed-upon price. Futures contracts are a true hedge investment and are most understandable when considered in terms of commodities like corn or oil. Futures are finacial contracts to buy or sell an asset at on agreed upon future date at a predermined price.They are often used to protect against price function of the underlying asset or help prevent or minimise losses from unfavourable price movements. It can also be used of underlying asset and profiter from it .future contract are traded in lot sizes having different expiry dates and set pricesthat are known to the Investors at the time of contract itself.There are many type of futures contract, such as stock future currency future etc.

1)Contract future

2)Currency future

1)Contract future

Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. Futures contracts, or simply "futures," are traded on futures exchanges like the CME Group and require a brokerage account that's approved to trade futures.

Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. Futures contracts, or simply "futures," are traded on futures exchanges like the CME Group and require a brokerage account that’s approved to trade futures.A futures contract involves both a buyer and a seller, similar to an options contract. Unlike options, which can become worthless at expiration, when a futures contract expires, the buyer is obligated to buy and receive the underlying asset and the seller of the futures contract is obligated to provide and deliver the underlying asse

2)Currency future

Currency futures are futures contracts for currencies that specify the price of exchanging one currency for another at a future date. The rate for currency futures contracts is derived from spot rates of the currency pair.

Why do developed currency futures?

Currency futures are used to lock in an exchange rate over some period of time. This can be used to hedge foreign currency fluctuations, which is especially useful in international trade and among multi-national corporations.

Meaning of future:

Futures are a financial derivative in which one party agrees with another party to buy or sell an asset at a predetermined price at some point in the future. Both physical commodities and financial instruments like stocks and bonds are traded using futures contracts.

Uses of future

Future of most use in treading. Most commonly use in two future heaving with future, speculating with future.

1)Heaving with future

2)Speculating with futures

Heaving with future: Futures contracts bought or sold with the intention to receive or deliver the underlying commodity are typically used for hedging purposes by institutional investors or companies, often as a way to help manage the future price risk of that commodity on their operations or investment portfolio. 

Speculating with futures: Futures contracts are generally liquid and can be bought and sold up to the time of expiration. This is an important feature for speculative investors and traders who don’t own the underlying commodity nor wish to. They can buy or sell futures to express an opinion about—and potentially profit from—the direction of the market for a commodity. Then, prior to expiration, they will buy or sell an offsetting futures contract position to eliminate any obligation to the actual commodity. 

Advantages of future stock:

1) Futures Are Highly Leveraged Investments

2. Future Markets Are Very Liquid

3. Commissions and Execution Costs Are Low

4. Speculators Can Make Fast(er) Money

5. Futures Are Great for Diversification or Hedging

6. Future Markets Are More Efficient and Fair

7.Futures Contracts Are Basically Only Paper Investments

8. Short Selling Is Easier

1) Futures Are Highly Leveraged Investments

To trade futures, A an investor has to put in a margin — a fraction of the total amount (typically 10% of the contract value). The margin is essentially collateral that the investor has to keep with their broker or exchange in case the market moves opposite to the position they have taken and they incur losses. This may be more than the margin amount, in which case the investor has to pay more to bring the margin to a maintenance level.

2. Future Markets Are Very Liquid

Future contracts are traded in huge numbers every day and hence futures are very liquid. The constant presence of buyers and sellers in the future markets ensures market order can be placed quickly. Also, this entails that the prices do not fluctuate drastically, especially for contracts that are near maturity. Thus, a large position may also be cleared out quite easily without any adverse impact on price.

3. Commissions and Execution Costs Are Low

Commissions on future trades are very low and are charged when the position is closed. The total brokerage or commission is usually as low as 0.5% of the contract value. However, it depends on the level of service provided by the broker. An online trading commission may be as low as $5 per side, whereas full service broker may charge $50 per trade.

4. Speculators Can Make Fast(er) Money

An investor with good judgment can make quick money in futures because essentially they are trading with 10 times as much exposure than with normal stocks. Also, prices in the future markets tend to move faster than in the cash or spot markets.

5. Futures Are Great for Diversification or Hedging

Futures are very important vehicles for hedging or managing different kinds of risk. Companies engaged in foreign trade use futures to manage foreign exchange risk, interest rate risk by locking in a interest rate in anticipation of a drop in rates if they have a sizable investment to make, and price risk to lock in prices of commodities such as oil, crops, and metals that serve as inputs. 

6. Future Markets Are More Efficient and Fair

It is difficult to trade on inside information in future markets. For example, who can predict for certain the next Federal Reserve's policy action? Unlike single stocks that have insiders or corporate managers who can leak information to friends or family to front-run a merger or bankruptcy, futures markets tend to trade market aggregates that do not lend themselves to insider trading. As a result, futures markets can be more efficient and give average investors a fairer shake.

7.Futures Contracts Are Basically Only Paper Investments

The actual stock/commodity being traded is rarely exchanged or delivered, except on the occasion when someone trades to hedge against a price rise and takes delivery of the commodity/stock on expiration. Futures are usually a paper transaction for investors interested solely on speculative profit. This means futures are less cumbersome than holding shares of individual stocks, which need to be kept track of and stored someplace (even if only as an electronic record).

8. Short Selling Is Easier

One can get short exposure on a stock by selling a future contract, and it is completely legal and applies to all kinds of futures contracts. On the contrary, one cannot always short sell all stocks, as there are different regulations in different markets, some prohibiting short selling of stocks altogether. Short selling stocks requires a margin account with a broker, and in order to sell short you must borrow shares from your broker in order to sell what you don't already own. If a stock is hard to borrow, it can be expensive or even impossible to short sell those shares.

Beginner's of full  guide used future: