Features of Futures Contract

The features of a futures contract may be specified as follows:

1. Trading on Organised Exchange: These are traded on an organized exchange like IMM, LIFFE, NSE, BSE, CBOT, etc.

2. Standardised Contract: These involve standardized contract terms, viz., the underlying asset, the time of maturity, and the manner of maturity, etc.

3. Association with Clearing House: These are associated with a clearing house to ensure smooth functioning of the market. Future exchanges have clearing house arrangements to guarantee the fulfillment of contract obligations.

4. Margin Requirements and Daily Settlement: There are margin requirements and daily settlements to act as further safeguard. Future positions can be closed easily.

5. Involvement of Regulatory Authority: These provide for supervision and monitoring of contracts by a regulatory authority.

6. Cash Settlement: Almost ninety percent of future contracts are settled via cash settlement instead of actual delivery of the underlying assets.

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