Agreement On Future Contract

Definition: A futures contract is a contract between two parties, in which both parties agree to buy and sell a specified asset at a given time and at a predetermined price. Description: The payment and delivery of the asset is made on the date on which the delivery date is called the delivery date. The buyer in the futures contract is known to maintain a long or simply long position. The seller in futures contracts must be short or simply short. The underlying asset in a futures contract could be commodities, equities, currencies, interest rates and bonds. The futures contract is held on a recognized exchange. Exchanges are intermediaries and intermediaries between the parties. Initially, both parties are required by the Exchange to submit a nominal account under the contract called margin. As futures prices have to change every day, price differentials are billed daily from the margin. When the margin is exhausted, the contractor must replenish the margin on the account. This process is called market labelling. Thus, on the day of delivery, only the spot price is used to determine the difference, since all other differences had previously been offset.

Futures can be used to hedge against risks or to speculate on prices. The Dutch played a pioneering role in several financial instruments and helped lay the foundations for the modern financial system. [3] In Europe, formal futures markets appeared in the Dutch Republic in the 17th century. Among the most notable futures were the future tulips, which developed at the height of dutch Tulipmania in 1636. [4] The D`jima Rice Exchange, founded in 1697 in Osaka, is considered by some to be the first futures market to meet the needs of samurai who, paid in rice and after a series of poor harvests, needed a stable transformation into coins. [6] Maintenance margin A minimum margin per current futures contract, which a client must manage on their margin account. The situation of forwards, where there is no daily true-up, in turn creates credit risks for forwards, but not so much for futures. Simply put, the risk of a futures contract is that the supplier will not be able to provide the referenced asset or that the buyer will not be able to pay it on the delivery date or the day the opening party concludes the contract. Futures contracts give companies a degree of certainty about the price of an asset in the future. This allows for better planning – a farmer who plants wheat may have an idea of how much he will sell when it is time to harvest it. Meanwhile, investors and speculators are taking advantage of futures contracts because they are taking advantage of expected changes in the price of these assets.

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