Future Market : What it is exactly?
Future Market : What it is Exactly ??
In very simple words, we can say
A future market is a type of auction market where participants buy and sell commodity and futures contracts for delivery on a specified future date.
Futures are exchange-traded derivatives contracts that lock in future delivery of a commodity or security at a price set today.
Futures contracts can be made as long as open interest is increased, unlike other securities that are issued. The size of futures markets is larger than that of commodity markets and is a key part of the financial system.
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What are the types of future market?
Futures are available for different segments.Commodity we associate future with commodity trading but futures are also available for other classes also.
Types of Futures :
Stock Futures.
Index Futures.
Currency Futures.
Commodity Futures.
Interest rate futures.
What are advantages and disadvantages of future market ?
Advantages of Future Market :
● easy pricing,
● high liquidity, and
● risk hedging.
Disadvantages of Future Market :
■ no control over future events,
■ price fluctuations, and
■ the potential reduction in asset prices as the expiration date approaches
So simply, we can say that futures have several advantages over options in the sense that they are often easier to understand and value, have greater margin use, and are often more liquid. Still, futures are themselves more complex than the underlying assets that they track. Be sure to understand all risks involved before trading futures.
Pros & Cons :
+ Investors can speculate with futures price in the direction of the underlying asset price in the market
- involves risks and speculators can lose even their initial margin, if price swings the other way
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