Brief introduction about stock futures trading
A futures contract is an agreement between two parties, where a contract is made for buying and selling stocks, it includes all details like a number of shares, the name of parties, the price of shares, Specific time and date also.This is a contract made for future, it displays at the time of transaction actually take place.Futures contracts include stock futures, commodities, indices and so on.
What are stock futures:
Stock futures are basically a derivatives contract that provides you right to buy and sell a bunch of stocks on a fixed date at a fixed price.You are responsible for fulfilling all terms and condition of the particular agreement.If you are new in trading you can also take stock futures tips from experts to clear important factors about stock futures trading.
Characteristics of stock futures
1. Durations – Stock futures are an agreement based on future.Where one party is ready to sell or buy shares to another party at a pre-decided rate, date and time.Since it is based on future the duration is decided at the time of preparation of contract.Futures contracts are available for duration of 1 month, 2 months and 3 months, this durations known as near month, middle month and far month.Every new contract is made after the expiration of the agreement.
2.Size of contracts –
Contracts can not be prepared for a single share. In derivatives, contracts made for the transactions of a bunch of shares.Contracts consist of a fixed lot of shares, the size of that lot is approved by exchange in which shares are traded.It differs from stock to stocks.Some of the major assets in which futures contracts are available are equity, commodity and indices.
3.Pre- defined terms and condition – This is a contract of buying and selling underlying assets at a specific price, that means a person promise to pay the price of assets at a given time period.Stock futures always has some standardised terms and conditions.Futures contracts are highly standardised, they have deep liquidity and high rate of profit if an investor is well aware how to manage his risk.
Advantages of trade in stock futures
1.Liquidity- Futures contract are traded every day in huge numbers, futures have high liquidity.Constantly purchasing and selling of futures contract make futures market wide and market order place very quickly in the market.We can gain a good amount of profit quite easily by following experts futures tips, stock tips and daily updates.
2.Commission cost is comparatively low – Commission in futures contracts are low and it is charged at the time of ending of position.It depends on the level of services a broker providing you to improve your investment.
3.Can make quick money – An investor with better knowledge about share market can make quick money on their investment as prices of futures contract tend to grow faster.Point to be remembered that it also include risk as well, you need to know how to manage your risk and how to gain more profit.
4.Low execution cost – This is the best advantage of stock futures that an investor has only to put a small amount as a margin on the exchange.If a trader predicts market situation correctly and takes decision at right time, he can make a huge profit from investing in the futures contract.
Difference between stocks and stock futures
1.When you buy stocks of a company, you are becoming a part of that company, but if you buy a stock futures contract, you are just creating a contract with a person or company, this contract will end at the time of expiration of the contract.
2.In stocks, you will have to pay for the particular stocks at the time of purchase along with broker commission while in stock futures you don’t need to pay any commission to brokers.
3.For purchasing of stocks you only need enough capital in your account, account that created at the time of registration.When you make a purchase of a stock, the amount of that stocks will be deducted from your account while in futures contract you have to deposit a nominal amount(initial margin) in exchange to cover future losses.