Fixed and digital contracts – new trading tools

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

Analytics Tools

Our suite of analytic tools spans fixed income and derivatives markets, and is designed to inform your trading and risk management strategies. Powered by our end-of-day and continuous evaluated pricing data technologies, we’ve developed fixed income analytic services that can help you analyze liquidity in difficult-to-price areas of the market, measure best execution, value securities and understand risk. We also offer analytics that can help you price, structure and analyze derivatives before placing trade.

Spanning fixed income and derivatives markets, our intelligent analytics tools help you measure best execution, analyze liquidity, manage credit risk, value securities and price derivatives.

Measure and manage bond trade execution quality and address regulatory compliance.

Analyze holdings, distributions and performance of fixed income and multi-asset class portfolios.

Measure liquidity risk in your portfolio.

One-stop-shop for your OTC Derivatives needs.

Enabling faster decision making, better alpha generation and compliance with accounting standards.

Trade ICE

Trade ICE

Access the world markets

Through our exchanges and clearing houses across North America, Europe and Asia, we deliver risk solutions across asset classes and time zones. Whether you’re hedging, investing or capital raising, our markets, clearing houses and data help transform your challenges into opportunities.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

As markets become interconnected the need for efficient pricing and transparency has increased. Our exchanges and clearing services enable participants to transact with precision wherever they are.

Chapter 2.2: What are Futures Contracts?

In the previous section, we learned about the derivatives market. Now, let’s go a little deeper and understand the futures contracts.

What are futures contracts:

A futures contract is an agreement between two parties – a buyer and a seller – wherein the former agrees to purchase from the latter, a fixed number of shares or an index at a specific time in the future for a pre-determined price. These details are agreed upon when the transaction takes place. As futures contracts are standardized in terms of expiry dates and contract sizes, they can be freely traded on exchanges. A buyer may not know the identity of the seller and vice versa. Further, every contract is guaranteed and honored by the stock exchange, or more precisely, the clearing house or the clearing corporation of the stock exchange, which is an agency designated to settle trades of investors on the stock exchanges.

Futures contracts are available on different kinds of assets – stocks, indices, commodities, currency pairs and so on. Here we will look at the two most common futures contracts – stock futures and index futures.

What are stock futures:

Stock futures are derivative contracts that give you the power to buy or sell a set of stocks at a fixed price by a certain date. Once you buy the contract, you are obligated to uphold the terms of the agreement.
Here are some more characteristics of futures contracts:

Lot/Contract size: In the derivatives market, contracts cannot be traded for a single share. Instead, every stock futures contract consists of a fixed lot of the underlying share. The size of this lot is determined by the exchange on which it is traded on. It differs from stock to stock. For instance, a Reliance Industries Ltd. (RIL) futures contract has a lot of 250 RIL shares, i.e., when you buy one futures contract of RIL, you are actually trading 250 shares of RIL. Similarly, the lot size for Infosys is 125 shares.*

Expiry: All three maturities are traded simultaneously on the exchange and expire on the last Thursday of their respective contract months. If the last Thursday of the month is a holiday, they expire on the previous business day. In this system, as near-month contracts expire, the middle-month (2 month) contracts become near-month (1 month) contracts and the far-month (3 month) contracts become middle-month contracts.

Duration: Contract is an agreement for a transaction in the future. How far in the future is decided by the contract duration. Futures contracts are available in durations of 1 month, 2 months and 3 months. These are called near month, middle month and far month, respectively. Once the contracts expire, another contract is introduced for each of the three durations
The month in which it expires is called the contract month. New contracts are issued on the day after expiry.

Example: If you want to purchase a single July futures contract of ABC Ltd., you would have to do so at the price at which the July futures contracts are currently available in the derivatives market. Let’s say that ABC Ltd July futures are trading at Rs 1,000 per share. This means, you are agreeing to buy/sell at a fixed price of Rs 1,000 per share on the last Thursday in July. However, it is not necessary that the price of the stock in the cash market on Thursday has to be Rs 1,000. It could be Rs 992 or Rs 1,005 or anything else, depending on the prevailing market conditions. This difference in prices can be taken advantage of to make profits.

What are index futures:

A stock index is used to measure changes in the prices of a group stocks over a period of time. It is constructed by selecting stocks of similar companies in terms of an industry or size. Some indices represent a certain segment or the overall market, thus helping track price movements. For instance, the BSE Sensex is comprised of 30 liquid and fundamentally strong companies. Since these stocks are market leaders, any change in the fundamentals of the economy or industries will be reflected in this index through movements in the prices of these stocks on the BSE. Similarly, there are other popular indices like the CNX Nifty 50, S&P 500, etc, which represent price movements on different exchanges or in different segments.

Futures contracts are also available on these indices. This helps traders make money on the performance of the index.
Here are some features of index futures:

Contract size: Just like stock futures, these contracts are also dealt in lots. But how is that possible when the index is simply a non-physical number. No, you do not purchase futures of the stocks belonging to the index. Instead, stock indices points – the value of the index – are converted into rupees.

For example, suppose the CNX Nifty value was 6500 points. The exchange stipulates that each point is equivalent to Rs 1 , then you have to pay 100 times the index value – Rs 6,50,000 i.e. 1x6500x100. This also means each contract has a lot size of 100.

Expiry: Since indices are abstract market concepts, the transaction cannot be settled by actually buying or selling the underlying asset. Physical settlement is only possible in case of stock futures. Hence, an open position in index futures can be settled by conducting an opposing transaction on or before the day of expiry.

Duration: As in the case of stock futures, index futures too have three contract series open for trading at any point in time – the near-month (1 month), middle-month (2 months) and far-month (3 months) index futures contracts.

Illustration of an index futures contract: If the index stands at 3550 points in the cash market today and you decide to purchase one Nifty 50 July future, you would have to purchase it at the price prevailing in the futures market.

This price of one July futures contract could be anywhere above, below or at Rs 3.55 lakh (i.e., 3550*100), depending on the prevailing market conditions. Investors and traders try to profit from the opportunity arising from this difference in prices

What are the advantages and risks of futures contracts:

The existence and the utility of a futures market benefits a lot of market participants:

  • It allows hedgers to shift risks to speculators.
  • It gives traders an efficient idea of what the futures price of a stock or value of an index is likely to be.
  • Based on the current future price, it helps in determining the future demand and supply of the shares.
  • Since it is based on margin trading, it allows small speculators to participate and trade in the futures market by paying a small margin instead of the entire value of physical holdings.

However, you must be aware of the risks involved too. The main risk stems from the temptation to speculate excessively due to a high leverage factor, which could amplify losses in the same way as it multiplies profits. Further, as derivative products are slightly more complicated than stocks or tracking an index, lack of knowledge among market participants could lead to losses.

What are index futures:

Now that we have read and understood the basics of futures contracts, let us move on to how they are priced. Click here

  • Snapshot of profit/loss
  • Reflects performance of your portfolio
  • Helps compute taxes

Investment Knowledge Bank

Trading Tools & Research Reports

Account Types & Value Added Services

TIME:
Mon to Fri – 8.00 AM TO 6.00 PM
Saturday – 9.00 AM to 2.00 PM

For Call & Trade, dial 1860 266 9191
Write to us at [email protected] for Trading Account-related queries and [email protected] for Demat Account-related queries

No need to issue cheques by investors while subscribing to IPO. Just write the bank account number and sign in the application form to authorise your bank to make payment in case of allotment. No worries for refund as the money remains in investor’s account.

KYC is one time exercise while dealing in securities markets – once KYC is done through a SEBI registered intermediary (broker, DP, Mutual Fund etc.), you need not undergo the same process again when you approach another intermediary. Attention Investors Prevent Unauthorized Transactions in your demat / trading account –> Update your Mobile Number/ email Id with your stock broker / Depository Participant. Receive information of your transactions directly from Exchanges on your mobile / email at the end of day and alerts on your registered mobile for all debits and other important transactions in your demat account directly from NSDL/ CDSL on the same day.” – Issued in the interest of investors. Circular No.: NSDL/POLICY/2020/0094, NSE/INSP/27436, BSE – 20200901-21

Kindly note that as per NSE circulars nos: NSE/INVG/36333 dated November 17, 2020, NSE/INVG/37765 dated May 15.2020 and BSE circular nos: 20201117-18 dated November 17, 2020, 20200515-39 dated May 15.2020, trading in securities in which unsolicited messages are being circulated is restricted. The list of such stocks are available on the website of NSE & BSE. In case of any queries, request you to kindly get in touch with Customer Service on 18002099191/9292

Kotak Securities Ltd. bearing licence no. CA0268 is a Corporate Agent of Kotak Mahindra Old Mutual Life Insurance Ltd. We have taken reasonable measures to protect security and confidentiality of the Customer Information.

The Stock Exchange, Mumbai is not in any manner answerable, responsible or liable to any person or persons for any acts of omission or commission, errors, mistakes and/or violation, actual or perceived, by us or our partners, agents, associates etc., of any of the Rules, Regulations, Bye-laws of the Stock Exchange, Mumbai, SEBI Act or any other laws in force from time to time.
The Stock Exchange, Mumbai is not answerable, responsible or liable for any information on this Website or for any services rendered by our employees, our servants, and us.

Filling complaints on SCORES- Easy & Quick

a. Register on SCORES portal | b. Mandatory details for filling complaints on SCORES i. Name, PAN, Address, Mobile Number, E-mail ID | c. Benefits: i. Effective Communication ii. Speedy redressal of the grievances

© 2005 Kotak Securities Limited.

Registered Office: 27 BKC, C 27, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051. Telephone No.: +22 43360000, Fax No.: +22 67132430.
Correspondence Address: Infinity IT Park, Bldg. No 21, Opp. Film City Road, A K Vaidya Marg, Malad (East), Mumbai 400097. Telephone No: 42856825.

CIN: U99999MH1994PLC134051. SEBI Registration No: INZ000200137(Member of NSE, BSE, MSE, MCX & NCDEX), AMFI ARN 0164, PMS INP000000258 and Research Analyst INH000000586.

Best Binary Options Brokers: 2020 Ranking
  • Binarium
    Binarium

    Best Choice! The leader in our ranking!
    Perfect for beginners!
    Free Demo Acc + Free Trading Education!

  • Binomo
    Binomo

    Good choice for experienced traders!

Like this post? Please share to your friends:
Binary Options Trading Education
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: