BY, SUSWETA SARKAR M.B.

A-4TH SEM ROLL NO:20

It is the supply and demand for the trading of futures contracts. A futures contract is an agreement to buy and sell an asset at a certain date at a certain price. Futures contracts can help reduce volatility in certain markets, but they contain the risks inherent to all speculative investing. These contracts may be traded on the secondary market, creating the futures market. The investor holding the contract at its end must take delivery of the underlying asset. Trading on the futures market often occurs on a futures exchange.

If you agree in April with your Aunt Sue that you will buy two pounds of tomatoes from her garden for $5, to be delivered to you in July, you just entered into a futures contract!

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Futures trading on a formal futures exchange in the United States originated with the formation of the Chicago Board of Trade (CBT) in the middle of the nineteenth century. Grain dealers in Illinois were having trouble financing their grain inventories. The risk of grain prices falling after harvest made lenders reluctant to extend grain dealers credit to purchase grain for subsequent sale in Chicago. To reduce their risk exposure, grain dealers began selling To Arrive contracts which specified the future date (usually the month) a specified quantity of grain would be delivered to a particular location at a price identified in the contract. Fixing the price in advance of delivery reduced the grain dealers risk exposure and made it easier to obtain credit to finance grain purchases from farmers. The to arrive contracts were an early forerunner of the modern futures contracts traded today. Although dealers found it advantageous to trade what essentially were forward cash contracts in various commodities, they soon found these forward cash contract markets inadequate and formed futures exchanges. The first U.S. futures exchange was the Chicago Board of Trade (CBT), formed in 1848. Other U.S. exchanges also have their origin in the last half of the 1800s.

Avoid price risk function Price discovery function Is conducive to market supply and demand and price stability To save transaction costs. It acts as an investment tool

Avoid price risk function: Futures market is the most prominent feature is provided for the production and operation of the means to avoid price risk. Price discovery function: In a market economy, prices are formed based on market supply and demand. Futures market traders from all sides to bring a lot of supply and demand information; the transfer of standardized contracts has increased market liquidity, the futures market price formation can reflect supply and demand, at the same time provide a reference for the spot market price, played a price discovery function. Is conducive to market supply and demand and price stability: First, the futures trading market sometime in the future performance of the futures contracts. Second, the involvement of speculators and futures contracts of multiple transfers. To save transaction costs: Futures market traders provide a safe, accurate and rapid turnover of the market place to provide trading efficiency, does not occur, triangular debts will help to establish and improve the market economy. It acts as an investment tool: Future market is an important investment tool to help rational use of social idle capital where futures can lead the development of tertiary industry, prosperous local economy.

Price discovery:
Futures market information helps people make better estimates of future prices. Futures market information helps people with their production or consumption decisions.

Hedging:
Hedging is the prime social rationale for futures trading. Hedgers have a pre-existing risk exposure that leads them to use futures transactions as a substitute for a cash market transaction. By doing so, they are able to reduce or eliminate their risk.

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Fast, Accurate and Large Volume Executions Fair Pricing Price Indication and Price Convergence Hedging As an Investment Instrument

The futures market is a global marketplace, initially created as a place for farmers and merchants to buy and sell commodities for either spot or future delivery. This was done to lessen the risk of both waste and scarcity. Rather than trade in physical commodities, futures markets buy and sell futures contracts, which state the price per unit, type, value, quality and quantity of the commodity in question, as well as the month the contract expires. Going long, going short, and spreads are the most common strategies used when trading on the futures market. The players in the futures market are hedgers and speculators. A hedger tries to minimize risk by buying or selling now in an effort to avoid rising or declining prices. Conversely, the speculator will try to profit from the risks by buying or selling now in anticipation of rising or declining prices. Futures accounts are credited or debited daily depending on profits or losses incurred. The futures market is also characterized as being highly leveraged due to its margins; although leverage works as a double-edged sword. It's important to understand the arithmetic of leverage when calculating profit and loss, as well as the minimum price movements and daily price limits at which contracts can trade.