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Tagged: Cash settlement, Derivatives, Futures, Physical Settlement
it is a contract that agrees to buy/ sell stock at a future date
Future is a type of derivative where the buyer and the seller agree to trade an asset(usually stocks) at a speculated price on a mutually agreed time. Both the seller and the buyer have rights as well as obligation.
If the price goes above the speculated price on that time, the buyer has the rights to buy the asset at the speculated price and hence the seller has the obligation to compensate the remainder.
If the price goes below the speculated price on that time, the seller has the rights to sell the asset at the speculated price and hence the buyer has the obligation to compensate the remainder.
Future does not require physical transaction of the asset. A mere cash transaction of the remainder would suffice.
in futures the traders of this contract hold rights to buy/ sell stocks at the agreed price in the future.
A futures contract is the most common type of derivative. It is an agreement between two parties to sell an asset at a fixed price on a future date.
Futures Contract : Where the Buyer and Seller agree to trade Stocks at a fixed price & Time both have rights & Obligations, if the price goes above the fixed price at that given time the buyer has the rights to buy the Stock at the price fixed, and the Seller has the obligation to compensate. If the price goes below the fixed price on that time the seller has the rights to sell the Stocks and the buyer has to compensate the difference, Future does not require physical transaction of the Stocks, A mere cash transaction of the reminder would suffice.
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