Types of Futures Contracts

Future contract can be broadly classified into:

1. Financial Futures: Financial futures are the futures contract to buy or sell a specific financial instrument at a specific future date and at a specified price.

There are different types of financial futures which are traded in the various future financial market of the world. These contracts can be classified into various categories which are as under:

i) Stock Futures: Stock futures are agreements to buy or sell a specified stock, i.e., the equity share of a specified company, in the future at a specified price.

ii) Stock Index Futures: Stock-index futures offer the investor a medium for expressing an opinion on the general course of the market.

iii) Currency Futures: A futures contract is a standardized contract, traded on an exchange, to buy or sell a certain underlying asset or an instrument at a certain date in the future, at a specified price.

When the underlying asset is a commodity, e.g., oil or wheat, the contract is termed a “commodity futures contract”.

When underlying an exchange rate, the contract is termed a “currency futures contract”.

iv) Interest Rate Futures: An interest rate future contract is an agreement between two parties to buy or sell fixed income security such as a Treasury bill or a Treasury bond at a given time in the future for a predetermined price.

2. Commodity Futures: Commodity futures contract involves obligations of both parties to perform in the future — the buyer (long) to purchase the asset underlying the future and the seller (short) to deliver the asset.

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