Explain Futures?
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A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. The futures contracts are standardized and exchange traded. To facilitate liquidity in the futures contracts, the exchange specifies certain standard features of the contract. It is a standardized contract with standard underlying instrument, a standard quantity and quality of the underlying instrument that can be delivered or which can be used for reference purpose in settlement.
The Standardized items in a futures contract are:
- Quantity of the underlying
- Quality of the underlying
- The date and the month of delivery
- The units of price quotation and minimum price change
- Location of settlement
Reference: NCFM, NSE
