A futures contract is an accord between two parties who have agreed to buy or sell a particular commodity of an agreed quantity. The agreement is based on a future transaction in which the commodity will be paid for in future at a time agreeable by both of the parties. This term is common in finance. These contracts are done on mutual consent negotiated at futures exchange acting as an intermediary. The partner who has agreed to purchase the asset in question is referred to as a long whereas the party who sells the given asset is said to short.
The price agreed upon by both of the parties is the strike price. This means that the parties have agreed that the price is fair, and they will follow the accord. In this type of transaction, the buyer hopes that the price quoted in the transaction would rise in the future while the seller hopes that the price would decrease in the future. After the deal is sealed the buyers and the sellers would monitor the activities of the futures until the specified date comes. This trading method does not incorporate the usual products for trading.
[...] For instance contracts to be delivered for every quarter of the year. This instance of delivery is called a strip hedge. If the firm trades a certain quantity of contracts say 50 for a specific time period like a month. Then offset them on the second month while trading other contracts. This trading process is called a stacked hedge. The trading sessions tend to alternate with one another. The end of one transaction session is the end of another transaction session. [...]
[...] Futures contracts in risk management companies can use trading on a US exchange Executive Summary Futures contracts require two parties in order to be executed. It requires a buyer and a seller for complete transactions. The main reason for engaging in a futures exchange is to prepare stakeholders for any eventuality and be in a position of making appropriate decisions. The commodity items that are used in these transactions are intangible. These commodities include stocks, indexes and treasury bonds. A successful futures trade is referred to as a Cognito while an inverted futures trade is called a backwardation. [...]
[...] COYLE, B. (2000). Currency futures. Canterbury, Financial World Pub. and BPP. England, Wiley. http://www.books24x7.com/marc.asp?bookid=29483. FABOZZI, F. J. (2001). Bond portfolio management. New Hope, Pa, Frank J. Fabozzi Assoc. FRASER, JOHN, & SIMKINS, BETTY. (2009). Enterprise Risk Management Today's Leading Research and Best Practices for Tomorrow's Executives, Epub Edition. [...]
[...] The normal market responds positively to the period when the prices seem to reduce. The inverted market responds positively to a period of rising prices. Conclusion A successful futures market requires several factors to succeed. For instance, the contract that is in trade must conform to conditions that relate to the physical market. This is likely to limit the chances of price distortion operations. Futures markets are operated so as to provide information for making manufacturing decisions. It is a necessity to have a future strategy that will last long enough to inform the market stakeholders about the risks they might face. [...]
[...] Risk management in Islamic finance: an analysis of derivatives instruments in commodity markets. Leiden, Brill. Bloomberg. (2012). Stock futures. http://www.bloomberg.com/markets/stocks/futures/. Last accessed 26/10/2012. BORODOVSKY, L., & LORE, M. (2000). The professional's handbook of financial risk management. Oxford [u.a.], CHANCE, D. M., & BROOKS, R. E. (2010). An introduction to derivatives and risk management. Mason, Ohio, South-Western Cengage Learning. [...]
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