Futures Trade

Features of Futures Trading

A “Futures Contract” is a highly standardised contract with the following features.

• Futures trading is conducted through an Association/Exchange in accordance with the procedure laid down in their Rules & Bye-laws.
• It is entered into for a standard variety known as the “basis variety” with provision for delivery of other identified varieties known as “tenderable varieties”.
• The units of price quotation and trading are fixed in these contracts.  Parties to the contracts cannot alter these units.
• The delivery periods are specified.
• The seller has the choice to decide whether to deliver goods against outstanding sale contracts.  In case he decides to deliver goods, he can do so through a number of pre-specified delivery centres.  There is a gradual move towards compulsory delivery where all the outstanding position on the maturity of the contract has to be compulsorily delivered.
• Futures contracts are not a platform for delivery.  The process of delivery operates as “threat” to ensure that the futures prices are not out of alignment with the physical market.  Therefore in futures market, actual delivery of goods takes place only in very few cases.  Transactions are mostly squared up before the due date of the contract and contracts are settled by payment of money differences without any physical delivery of goods taking place

Last Updated : 04-01-2008