Topic: Derivatives

Margin Requirements in Futures Contracts

In a futures contract, the margin balance is adjusted everyday based on the changes in the settlement price from the previous day. This process is called mark-to-market. Usually, marking to market (MTM) is does on a daily basis, however exchanges may require more...

Price Limits in Futures Contracts

Futures exchanges impose a price limit on how much the futures price can change from the previous day’s settlement price. If traders want to trade at a price above or below this price limit, the trade will not take place.  Till the time the price is outside the limit...

Role of Margin Money in Futures Trading

In order to enter into a futures contract, the trader needs to deposit a margin with its broker, which in turn deposits this margin with the clearinghouse. Since the clearinghouse is the counterparty in every futures contract, the margin money is required as a...

How Currency Forward Contracts Work?

A currency forward contract is an agreement between two parties to exchange a certain amount of a currency for another currency at a fixed exchange rate on a fixed future date. By using a currency forward contract, the parties are able to effectively lock-in the...

Characteristics of Futures Contracts

Futures contracts are similar to forward contracts, where two parties agree to buy or sell an underlying asset at a predetermined price on a pre-specified date. The key difference between the two is that unlike a forward contract, which is traded over-the-counter, a...

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