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Finance GlossaryFutures Contract
Futures Contract
Definition of Futures Contract
A futures contract is a derivative instrument that is legal agreement between two parties for the mandatory purchase or sale of an underlying asset at a pre-agreed price and date.
Every futures contract contains a standard lot size on top of the agreed price and date as they are a standardized derivative traded on a stock exchange, most commonly on NSE and BSE.
The price of a futures contract is known to vary from the spot price of the same underlying asset due to factors like the cost of carry, interest rates, and more.
Every futures contract contains a standard lot size on top of the agreed price and date as they are a standardized derivative traded on a stock exchange, most commonly on NSE and BSE.
The price of a futures contract is known to vary from the spot price of the same underlying asset due to factors like the cost of carry, interest rates, and more.
Related Terms
Irredeemable Debentures
Irredeemable debentures are debt instruments that can not be sold unless the company is sold or shuts up shop. Those who hold irredeemable debentures will be paid an interest as long as the company operates its business.
Intrinsic Value Of Share
Intrinsinc value of a share is the actual value of a stock, not the value at which it is trading in the secondary market. There are multiple ways to calculate the intrinsic value of a share. The most common method include discounted cash flow while adjusting the time value of money to calculate the present value of the stock is also a popular method.
Passive Investing
Passive Investing is an investment strategy where the goal is to mimic the performance of an index representing a broad market, as opposed to attempting to beat the market through active stock picking or market timing. The purpose is to have market returns with minimum costs. This strategy is implemented mostly in Index Funds and exchange-traded funds (ETFs). Passive investing is characterised by low expense ratios and steady performance in the long term, thus avoiding potential human error or poor fund manager decisions.
NSE (National Stock Exchange)
NSE (National Stock Exchange) is India’s largest electronic stock exchange, where shares, derivatives, and other financial instruments are traded. It is known for its fully automated trading system, transparency, and high liquidity, making trading faster and more efficient for investors across the country.
Expense Ratio
An expense ratio is a management fee that investors must pay for the services of the fund manager and their team. Mutual funds are handled by fund managers who take care of everyday stock analysis, buying & selling, and other activities. The expense ratio is a fee to compensate for this day-to-day management.
Block Trade
A block trade is a substantially large buy or sell order for a stock, commodity, or other security. Block trades are typically done by institutional investors like hedge funds, mutual funds, and others to mask the true size of the transaction.
Shares change hands between companies after the price of the security is privately negotiated. Most block trades are routed through investment banks and executed outside the conventional market.
Shares change hands between companies after the price of the security is privately negotiated. Most block trades are routed through investment banks and executed outside the conventional market.
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