Types of Financial Futures with Proper Definition and Explanation

Futures are derivative financial products. A future is a contract by which the exchange of a certain underlying asset (securities, indices, agricultural products, raw materials) is agreed at a predetermined future date, at a price agreed in advance. Types of Financial Futures

It is called a “long position” to which the buyer of futures adopts: at the expiration of the contract he would have the right to receive the underlying asset (if it were liquidated by physical delivery). However, the buyer may prefer to close his position in the market before expiration by performing the opposite operation, that is, by selling futures.

The “short position” is that of the futures seller, who agrees to deliver the underlying at maturity (if settled by physical delivery), in exchange for the price established in the contract. You can also get rid of such a position by buying before expiration.

In futures contracts traded in MEFF there is a daily profit and loss settlement, that is, MEFF calculates the profits or losses for the client’s position, the result of comparing the price set in the contract (called the exercise price), with the market price of the underlying of the contract, and credits or debits the client’s account.

Types of Futures                               Types of Financial Futures

  • Stock Futures. Index futures first appeared in India in the year 2000.
  • Index Futures. Index futures can be used to speculate on the movements of indices, like the Sensex or Nifty, in the future.
  • Currency Futures.
  • Commodity Futures.
  • Interest rate futures.

Futures Features

  • The conditions of the contracts are standardized with regard to their nominal amount, purpose and expiration date.
  • They are traded on organized markets so they can be bought or sold at any time during the trading session without having to wait for the expiration date.
  • Both to buy and sell futures, the parties must provide guarantees to the market, that is, an amount – determined based on the open positions they hold – as a sign of compliance with their commitment, so as to avoid the rest of the counterparty.

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