What Are Forward Contracts in India

Here are the characteristics of a bipartite futures contract: In this scenario, the seller`s prediction turns out to be correct and therefore benefits from the sale through the futures contract. Although the price of the asset has fallen, the seller can sell it at a price higher than its current value. The profit that the seller makes in this scenario is the difference between the price at which the seller sells the asset and the actual current price of the asset. In response to an email request, an NCDEX spokesperson said the futures issue had been raised during a series of meetings between exchange and Sebi officials to discuss various aspects of the operation and regulation of commodity markets, but no concerns were raised. “During discussions with the exchange, Sebi officials did not express any concerns about futures. NCDEX offers a refined version of the futures contract. This maintains innate features such as flexibility in trading trading parameters while increasing trading ease by providing a solid legal basis to reduce counterparty risks,” the spokesperson said. Depending on the evolution of the market and the evolution of the price of the asset, the actual result of the futures contract can usually be done in three different ways: Under the Futures (Regulation) Act, 1952, which governs the trading of commodities in India, a futures contract is a contract for the actual delivery of raw materials, as opposed to a futures contract, where the buyer can also pay for the contract in cash. Futures contracts were introduced to the commodity market last year, but are not allowed on the stock exchange.

First, let`s take an example of a non-currency-dependent futures transaction. Let`s say that – Now that we know what a futures contract is, and now we can get an overview of the features. “With the type of resources it has, it will be relatively easy for Sebi (compared to FMC) to monitor futures transactions. Ideally, Sebi would not want to start regulating commodities with a grey area, but it should consider trading futures contracts with a better regulatory framework with a full guarantee of counterparty risk, which is a no-brainer for any exchange-traded product,” said Girish Dev, Managing Director and Chief Executive Officer of Geofin Comtrade Ltd. a commodity brokerage firm. Futures contracts are atypical contracts that are not traded on a stock exchange. These are essentially over-the-counter transactions between banks and their customers; This function of futures contracts is called “over the counter”. To continue with the example above, let`s now assume that the initial price of B`s house is 100,000 and A enters into a futures contract to buy the house in a year from today. But since B knows he can immediately sell for $100,000 and put the product in the bank, he wants to be compensated for the late sale. Assuming that the risk-free return R (the bank rate) for a year is 4%, then the money in the bank would increase to 104,000, risk-free. So B would like at least $104,000 in a year to make the contract worth it for him – the opportunity costs are covered.

And now the question arises as to why we should use futures contracts. The main reason is to manage the risk and cover the likely loss that may occur during execution. All of the points described above provide the bridge to determine parity between spot and forward rates. Futures and futures are financial derivatives and are types of agreements between the parties to buy or sell a commodity at a later date. However, they are still slightly different from each other. Futures are traded on an exchange and are standardized, while futures are unregulated agreements that are not traded on any exchange. The transaction that the farmer has entered into is called a forward transaction, and the contract that covers that transaction is a futures contract. A futures contract is an agreement between the buyer and the seller that requires the seller to deliver a specific asset of specified quality and quantity at the specified price and location, and the buyer is required to pay the agreed price.

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