Introducing the futures contract

In the previous video, the concept of forwards market was discussed. In this video, we will understand what futures are. Futures are a part of the futures contract which involves a buyer and a seller. Unlike a forwards contract, a futures contract has a standardised format and is regulated by a regulator to ensure that the buyer, seller, and intermediaries fulfill their obligations. There are several differences between futures and forwards contracts, but two of the main differences are that futures contracts are standardised and regulated. The first component of a futures contract is the underlying asset, which can be equity, gold, currency, or an index such as Nifty or Sensex. The lot size is the minimum amount of shares that can be traded, whereas the contract size is the number of shares multiplied by the price of the shares. The expiry date is the date when the contract ceases to exist, and the margin is a percentage of the total contract size that must be paid by both the buyer and the seller. In real-life example, the margin required is usually a percentage of the total contract size, and in the case of futures contracts in India, a search for the underlying asset, such as Infosys, on NSC India’s website can show the details of the contract, including the margin requirements.