A futures contract is a firm commitment whose characteristics are known in advance. Covering a specified amount of underlying assets on the basis of a precisely defined place, date (called maturity), and traded on a futures exchange.
Depending on the underlying distinction between financial futures and commodity futures. In the conclusion of futures there are no costs in the form of bonuses, both buyers and sellers bear the same rights and obligations. Thus, it is unnecessary to create a balance between the parties. This is in contrast to options.
Futures contracts are financial instruments most frequently traded worldwide, by volume. Futures contracts are an improvement over forward contracts, which are they related to.
These transactions ultimately allow producers to lock in a price well in advance and protect themselves from a collapse in prices. The seller does not benefit from any increase in prices.
Futures contracts have emerged in their present form in the second half of the nineteenth century in the U.S. market of cereals (corn, wheat, oats, etc). From the sixteenth century, certain goods were already the subject of negotiations on futures.
The price of futures contracts is subject to the free pricing of supply and demand on the futures exchange. It generally moves in sync with the current price on the spot market price of the underlying. Differences and divergent development between cash and futures allow arbitrage. Therefore, futures price and spot price are not distant.
The futures price is usually the price of the same underlying asset. In most cases the daily spot price, depends on how far the settlement date moves upwards. The fulfillment of appointments is imminent because someone has to ensure that the product (the value) is actually ready to meet the deadline.
The mechanism of the margin call is as follows: each day, after the market closes, the clearing house calculates gains/losses of each operator. Adjustments are made each day and counterparty risk taken by the clearing house is limited to daily variations, which is already covered by the deposits, hence the overall risk is zero.
When the market is limit up or down, ratings are suspended until the clearing house can make a margin call, (known as intra-day margin call). The details of the process of delivery of the underlying are public. Quantity, quality, date and place are standardized and are determined by the market authorities.
The principle of delivery is essential for the proper functioning of the market. It only allows convergence at maturity as regards the price of the futures contract and its underlying. However, it seldom occurs, operators usually close their positions before the contract expires, that is to say that they buy or sell on the market the exact number of futures contracts they had previously sold or bought .