carao
15-03-2008, 07:09 PM
futures contract is an agreement between buyer and seller to buy or sell a particular asset (e.g. shares) some time in the future at a price agreed today.
Futures contracts may be cash-settled or require physical delivery of the asset. For equity futures, a cash-settled contract requires a cash amount to be paid on the settlement day, reflecting the difference between the initial futures price and the price of the underlying shares when the futures contract reaches maturity.
In doing this, the investor can buy and sell contracts without ever owning the shares in the first place. This feature is often quite attractive to investors because it prevents them from paying stamp duty which they would otherwise have to pay if they were trading shares.
Options give investors the right, but not the obligation to buy or sell a particular asset (eg shares) at a fixed price on or before a specific date. Unlike futures contracts, the potential loss to the buyer of an option is limited to the initial price (or premium) paid for the contract, regardless of the performance of the underlying share.
Like futures, options can be used to try to capitalizes on an upward or downward movement in the market, but also generate returns in a static market.
Futures contracts may be cash-settled or require physical delivery of the asset. For equity futures, a cash-settled contract requires a cash amount to be paid on the settlement day, reflecting the difference between the initial futures price and the price of the underlying shares when the futures contract reaches maturity.
In doing this, the investor can buy and sell contracts without ever owning the shares in the first place. This feature is often quite attractive to investors because it prevents them from paying stamp duty which they would otherwise have to pay if they were trading shares.
Options give investors the right, but not the obligation to buy or sell a particular asset (eg shares) at a fixed price on or before a specific date. Unlike futures contracts, the potential loss to the buyer of an option is limited to the initial price (or premium) paid for the contract, regardless of the performance of the underlying share.
Like futures, options can be used to try to capitalizes on an upward or downward movement in the market, but also generate returns in a static market.