Personal Finance & Money Asked by Juzer Hakimji on March 24, 2021
A future contract means buying and selling at a specified price(call it agreement price) on specified date between 2 parties in future
so If a stock’s spot price is 1000 and future price is 1003,how should i find the agreement price?
A futures contract trades at many different prices over its lifetime. Each of those prices corresponds to a different "agreement" to buy and sell the underlying. Futures trading requires margin funds (collateral) from both parties to back up the "agreement". Futures are marked to market: If the market moves against your position, you have to put up more money now or face liquidation (margin call). Futures with given terms are fungible: Only net agreements are tracked, so if you buy at 100, the market moves in your favor, and you sell the same quantity at 110, you get your profit in cash now and have no remaining obligation to accept or deliver the underlying.
Thus, while a future can be thought of as an agreement to buy and sell, it doesn't have an inherent strike price like an option. Or rather, the strike price is effectively zero: A future is equivalent to a European call option with zero strike that can be traded with high leverage. See this question.
In your example, if you buy or sell the future at 1003, you are effectively agreeing to buy or sell the underlying at that price (1003) on the expiration date (unless you offset the position before then). I say effectively in that your profit or loss will be as if this is the agreement. But the profit or loss will accumulate in cash day by day (marked to market) rather than all at once at the end.
Answered by nanoman on March 24, 2021
so If a stock's spot price is 1000 and future price is 1003,how should i find the agreement price?
Lets say I wanted to buy your car. How we would find the agreement price?
If I wanted to know the price you paid for it, how would I find that out?
In both cases, I would have to communicate with you in some way, ie, talk to you.
Answered by ThatDataGuy on March 24, 2021
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