Everything you need to know about Future contracts is here: http://zerodha.com/varsity/module/futures-trading/
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Hello,
A futures market overcomes the limitations of forwards by bringing the trades to an organized exchange where market participants can buy or sell a fixed amount of a financial asset on a future date at an agreed price. This makes them a standardized forward contract traded on an exchange.
The clearing corporation associated with the exchange guarantees settlement of these futures trades. There is no actual physical settlement that takes place in a futures market. It is all cash settled and hence positions can only be carried forward until expiry. One can either carry a long position(buy position) or a short position(sell position).
Features of a futures market:
- centralized trading platform, i.e. exchange
- price discovery through free interaction of buyers and sellers
- margins are payable by both the parties
- standardized contracts(quality and quantity decided today)
Here, the exchange decides all the contract terms of the contract other that the price.
Cheers!
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