Stock futures are the financial products of cash market where the underlying asset on which trade is carried out are contracts, often called future contracts. What is a future contract? A future contract is a written agreement between buyer and seller to exercise a specific quantity of shares or commodity, depending upon the market, for a future date at a pre-fixed rate. There are many MCX free tips providers who extend their services for successful trading.
Now, the question here arises is, how the cost of future contracts is decided?
Well, a certain theoretical formula is used to price the future contracts. It is given by;
Future contract price = spot price + cost of carry
Now, let’s take an example to understand it more clearly.
Suppose, there’s a company named ABC whose spot price is 1800 and the interest rate is 7% per annum.
The future contract price for one month will be:
1800 + 1800*0.07*30/365 = 1800 + 10.35 = 1810.35
But, one must note that the actual future contract price is not the same as the theoretically determined price. This is because the actual future price also depends largely on the supply-demand ratio of the underlying contract.
Every new thing comes up into market place due to two reasons;
One is the need of a new system.
Another is the deficiencies in the existing system.
Stock cash market required immediate lump sum payment which is not possible for all the traders to do so. Hence, only large businessmen and elite class were engaged in trading earlier. The future market brought many opportunities for the retail traders to invest in market place. Retail traders include students, small businessmen, housewives, etc…
Stock future provides many amenities to the traders. Firstly, the traders and investors can take a long term view on the stocks using stock futures. Also, the derivative market provides high leverages i.e one can take large position with less capital investment.
The closing price of the future contract is the settlement price. Closing price is the spot price of contract when it stands null i.e. at the time of expiry. The difference between the opening price and closing price of the future contract determines the losses and profits. If the difference is negative, trader enjoys profit but, if the difference is positive, trader has to bear losses. There are many research houses that provide option tips for future trading.