inside futures | BTCC Knowledge

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What are futures?

What are 'Futures'. Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on...

What is an index future?

An index future, therefore, is a legal contract that obligates traders to buy or sell a contract that is derived from a stock market index by a certain date at a predetermined price. Index futures, which are also called stock or equity market index futures, function just like any other futures contract.

What happens to index futures when the stock market declines?

Since many stocks tend to move in the same general direction, the portfolio manager could sell or short an index futures contract in case stocks prices decline. In the event of a market downturn, the stocks within the portfolio would fall in value, but the sold index futures contracts would gain in value, offsetting the losses from the stocks.

How do investors use futures contracts?

Investors can use futures contracts to speculate on the direction in the price of an underlying asset. Companies can hedge the price of their raw materials or products they sell to protect from adverse price movements. Futures contracts may only require a deposit of a fraction of the contract amount with a broker.

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