Purpose and Mechanics of Futures

What this unit covers

Understand a futures contract, an agreement to buy or sell at a set price on a future date, and why it exists to transfer risk, not just to speculate.

By the end you will be able to

• Explain what a futures contract is in plain words.
• Explain why futures exist as a way to transfer price risk.
• Identify that locking in a price protects one side while exposing the other to the same price move.

How it starts: A Price That Cannot Wait

1. You hold a stock you plan to sell in exactly one month.
2. A trader offers to fix today's price of 500 rupees for that sale now.
3. If the price moves either way next month, who ends up better off?

Words you will meet

Futures contract

An agreement made today to buy or sell something at a fixed price on a set future date.

In this module: Futures

1. Purpose and Mechanics of Futures (this unit)
2. Contract Specifications, Lot Size & Expiry
3. Margin and Mark-to-Market
4. Basis, Rollover & Settlement