Stock future market

Author: pinky


Future market and options market both are purely based on contract basis.
In future market stock index futures are used for hedging, trading, investment.

• Hedging using stock index futures could involve hedging against a portfolio of shares or equity index options.

• Trading using stock index futures could involve, for instance, volatility trading (The greater the volatility, the greater the likelihood of earning money – usually taking relatively small but regular profits).

• Investing via the use of stock index futures could involve exposure to a market or sector without having to actually purchase shares directly.

Please note the following cases of equity hedging with index futures:

• Where your portfolio 'exactly' reflects the index (this is unlikely). Here, your portfolio is perfectly hedged via the index future.
• Where your portfolio does not entirely reflect the index (this is more likely to be the case). Here, the degree of correlation between the underlying asset and the hedge is not high. So, your portfolio is unlikely to be 'fully hedged'.

There are 1 month, 2 month and 3 month futures contracts available in India. The contracts are settled on the last Thursday of every month. If this happens to be a trading holiday, the previous day would be the expiry date.
The risk involved in trading a futures contract is equal for both buyer and seller or "symmetrical". Futures trading also comes under the purview of Securities and Exchange Board of India (SEBI).
Equity index futures and index future tend to be in liquid markets for close to delivery contracts. They trade for cash delivery, usually based on a multiple of the underlying index on which they are defined.
OTC products are usually for longer maturities, and are usually a form of options product. For example, the right but not the obligation to cash delivery based on the difference between the designated strike price, and the value of the designated index at the expiration date. These are traded in the wholesale market, but are often used as the basis of guaranteed equity products, which offer retail buyers a participation if the equity index rises over time, but which provides guaranteed return of capital if the index falls.
Futures contract prices also have the same structure like the cash market prices. But there is no price band for futures or options; To avoid errors in entering orders the exchange may fix the price range. Prices in excess of the range will need to be reviewed by the exchange. In addition, if the "open interest" or the maximum number of outstanding contracts exceeds a certain value, no fresh positions will be allowed for the particular scrip.An option is a contract giving the buyer the right, but not the obligation, to buy or sell an underlying asset (a stock or index) at a specific price on or before a specified date. In the case of a stock option, its value is based on the underlying stock (equity). For an index option, its value is based on the underlying index.
Example of Futures Trading:
A person bought a futures contract to buy security A at a price of Rs 500 on a specific future date. On the expiry date, the price went up to Rs 600. So the deal is good for buyer who will get the securities at Rs 100 lesser than the actual market price. On other side, it is devastating for the seller who is obliged to sell them at lower price which has been agreed upon.
Article Source: http://www.articlesbase.com/business-opportunities-articles/stock-future-market-4217715.html
About the Author
AUTHOR
Vivek Sharma
E-Mraketing Specialist
CapitalVia Global Research Limited
www.capitalvia.com/