1.1 – Overview
The Futures market is an integral part of the Financial Derivatives world. “Derivatives”, as they are called, is a security whose value is derived from another financial entity referred to as an “Underlying Asset”.
Let’s learn more in this video.
In the following video, we will learn about the Futures market basics.
We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- The forwards’ contract lays down the essential foundation for a futures contract.
- A Forward is an OTC derivative that is not traded on an exchange.
- Forward contracts are private agreements whose terms vary from one contract to another.
- The structure of a forwards contract is pretty simple.
- In a forward agreement, the party agreeing to buy the asset is called the “Buyer of the Forwards Contract.”
- In a forward agreement, the party agreeing to sell the asset is called the “Seller of the Forwards Contract.”
- A variation in the price would impact both the buyer and the seller of the forwards’ contract.
- Settlement occurs in two ways in a forward contract – Physical and Cash settlement.
- A futures contract reduces the risk of a forward contract.