- When the buyer and seller of commodity made an agreement in advance for changes in the price of the commodity in the future is called Future contracts.
When the buyer says seller that he will buy the commodity at Rs.105/- after one month but the current price of the commodity is Rs.100/-.
Let’s Discuss Future Contracts:-
After one month maybe the price of the commodity goes up (>Rs.105) or goes down (<Rs.105) it doesn’t affect what the buyer said?
If both parties agreed on the contract then it is called Future Contract.
Some facts about Future Contracts:-
- Futures Contracts are traded on Future Markets.
- It can be traded by both day traders as well as the long-term trader.
- Day traders can’t hold physical commodities.
- It can be traded in Indexes, Commodities & Currencies.
- It is traded in tick size or Lot size.
What is Future Market?
- Future Market is also known as Future exchange.
- It is the place where Future contracts are traded i.e buy & sell.
- There are so many future exchanges like Multi commodity exchange, The New York Mercantile Exchange, etc.
- There are two kinds of participants in futures markets:- hedgers and speculators.
- Future exchange doesn’t set prices of Future Contracts or traded commodities. The price of a commodity depends on Supply and Demand of commodity.
What is Physical Market?
- A physical Market is a Place where Buyer & Seller can meet face to face.
- It is the market where commodities bought in cash and exchange immediately.
- It is also called the cash Market or Spot Market.