FORWARDS AND

FUTURES MARKET
By
Sagar Bonkar
Karthika Gopinath
Dhairya Mehta

05
23
28

AGENDA

Derivatives
Types of Derivatives
Forward Contracts
Features of Forward Contracts
Limitations of Forward Contract
Futures Market
Futures of Futures
Application of Features
Comparison
Advantages
Conclusions

DERIVATIVES
Derivative is a product whose value is derived from
the value of one or more basic variables in a
contractual manner

The underlying asset can be equity, forex, commodity

or any other asset

TYPES OF DERIVATIVES

Derivatives

Forwards

Futures

Options

TYPES OF DERIVATIVES
(CONTD.)

Derivatives
Forwards

Futures

FORWARD CONTRACTS
A forward contract is an agreement to buy or sell an
asset on a specified date for a specified price
The forward contracts are normally traded outside the
exchanges

FEATURES OF FORWARD
CONTRACTS

Over the counter trading (OTC)

No down payment
Settlement at maturity
Linearity
No secondary market
Necessity of a third party
Delivery

LIMITATIONS OF FORWARD
CONTRACTS
Lack of centralization of trading
Illiquidity, and
Counterparty risk

FUTURES MARKET
Futures markets were designed to solve the problems
that exist in forward markets
A futures contract is an agreement between two
parties to buy or sell an asset at a certain time in the
future at a certain price

But unlike forward contracts, the futures contracts are

standardized and exchange traded

FUTURES TERMINOLOGY

Spot price
Futures price
Contract cycle
Expiry date
Contract size
Basis
Cost of carry
Initial margin
Marking-to-market
Maintenance margin

FEATURES OF FUTURES

Highly standardize
Down payment
Settlements
Hedging of price risks
Linearity
Secondary market
Non- delivery of the asset

APPLICATION OF FUTURE

Future Payoffs is liner payoffs

Payoff for buyer of futures
Payoff for seller of futures
Use of Futures by,
Hedgers
Speculators
Arbitragers

COMPARISON

Contract in the Nature of the contract

Existence of secondary market
Settlement
Modus operandi
Down payment
Delivery of the asset

ADVANTAGES

Protection against price fluctuations

Avoidance of carrying costs
Proper planning for buying/selling
Proper portfolio management
Proper cash management
Purchases and sales in bulk
Highly flexible
Boon to financial intermediaries

THANK YOU!!!