Futures Trading

Published on December 2016 | Categories: Documents | Downloads: 56 | Comments: 0 | Views: 439
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Futures Trading
Futures trading is an agreement between a buyer and a seller obligating the seller to deliver a specified asset of specified quality and quantity to the buyer on a specified date at a specified place and the buyer, in turn, is obligated to pay to the seller a pre-negotiated price in exchange of the delivery. In futures trading the contracting parties negotiate on, not only the price at which the commodity is to be delivered on a future date but also on what quality and quantity to be delivered and at what place. Futures trading is usually carried out on a futures exchange. Advantages of Futures Trading It aids in the process of proper price discovery and hedging of price risk with reference to the given commodity.

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It is useful to producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities. It helps the consumer get an idea of the price at which the commodity would be available at a future point of time. The consumer can do proper costing and also cover his purchases by making forward contracts. It provides the exporters an advance indication of the price likely to prevail and thereby helps them in quoting a realistic price and secure export contract in a competitive market.

Futures Trading in India Presently, futures trading is permitted in 41 commodities in India. These include pepper (domestic and international), turmeric, gur, castorseed, hessian, jute, sacking, cotton, potato, castoroil (international), soyabean (oil and cake), kapas, RBD palmolein, sugar and tea.

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