presentation on functions of future contract

8/6/2019 Presentation on functions of future contract

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BY,

SUSWETA SARKAR M.B.A-4TH SEM

ROLL NO:20



` It is the supply and demand for the trading of futures

contracts. A futures contract is an agreement

to buy and sell an asset at a certain date at a certain price.

` Futures contracts can help reduce volatility in

certain markets, but they contain the risks inherent to allspeculative investing. These contracts may be traded on

the secondary market, creating the futures market. The

investor holding the contract at its end must take delivery of

the underlying asset. Trading on the futures market often

occurs on a futures exchange.



If you agree in April with your Aunt Sue that you will buy two pounds of tomatoes from her garden for $5, to be delivered to you in July, you just entered into a futures contract!



` Futures trading on a formal futures exchange in the United States originatedwith the formation of the Chicago Board of Trade (CBT) in the middle of thenineteenth century.

` Grain dealers in Illinois were having trouble financing their grain inventories.

` The risk of grain prices falling after harvest made lenders reluctant to extendgrain dealers credit to purchase grain for subsequent sale in Chicago.

` To reduce their risk exposure, grain dealers began selling To Arrive contractswhich specified the future date (usually the month) a specified quantity of

grain would be delivered to a particular location at a price identified in thecontract.

` Fixing the price in advance of delivery reduced the grain dealers risk exposureand made it easier to obtain credit to finance grain purchases from farmers.

` The to arrive contracts were an early forerunner of the modern futurescontracts traded today.

` Although dealers found it advantageous to trade what essentially wereforward cash contracts in various commodities, they soon found theseforward cash contract markets inadequate and formed futures exchanges.

` The first U.S. futures exchange was the Chicago Board of Trade (CBT), formedin 1848. Other U.S. exchanges also have their origin in the last half of the1800s.



Avoid price risk function

Price discovery function

Is conducive to market supply and demand and price

stability

To save transaction costs.

It acts as an investment tool



` Avoid price risk function:

Futures market is the most prominent feature is provided for the production and

operation of the means to avoid price risk.

` Price discovery function:

In a market economy, prices are formed based on market supply and demand.

Futures market traders from all sides to bring a lot of supply and demand information; the

transfer of standardized contracts has increased market liquidity, the futures market price

formation can reflect supply and demand

, at the same time provide a reference for the spotmarket price, played a price discovery function.

Is conducive to market supply and demand and price stability:

First, the futures trading market sometime in the future performance of the futures

contracts. Second, the involvement of speculators and futures contracts of multiple transfers.

` To save transaction costs:

Futures market traders provide a safe, accurate and rapid turnover of the marketplace to provide trading efficiency, does not occur, triangular debts will help to establish

and improve the market economy.

It acts as an investment tool:

Future market is an important investment tool to help rational use of social idle

capital where futures can lead the development of tertiary industry, prosperous local

economy.



` The futures market is a global marketplace, initially created as a place for farmers and

merchants to buy and sell commodities for either spot or future delivery. This was done tolessen the risk of both waste and scarcity.

` Rather than trade in physical commodities, futures markets buy and sell futures contracts,

which state the price per unit, type, value, quality and quantity of the commodity in

question, as well as the month the contract expires.

` Going long, going short, and spreads are the most common strategies used when

trading on the futures market.` The players in the futures market are hedgers and speculators. A hedger tries to minimize

risk by buying or selling now in an effort to avoid rising or declining prices. Conversely, the

speculator will try to profit from the risks by buying or selling now in anticipation of rising or

declining prices.

` Futures accounts are credited or debited daily depending on profits or losses incurred. The

futures market is also characterized as being highly leveraged due to its margins; although

leverage works as a double-edged sword. It's important to understand the arithmetic of

leverage when calculating profit and loss, as well as the minimum price movements and daily

price limits at which contracts can trade.

presentation on functions of future contract

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