A Note On Currency And Index Futures

CONCLUSION:

Futures can result in serious losses, if used without proper knowledge. Hence, the prerequisite for trading in futures is a thorough knowledge of the futures market. This concept note is an attempt to make the readers understand the futures market better and how it can be used to benefit market participants. If used properly, futures can help to reduce price risk significantly.

EXHIBIT I
DIFFERENCE BETWEEN FUTURES AND FORWARDS CONTRACTS

Particular	Futures	Forwards
Location	Futures exchange	No fixed location
Size of contract	Standard (fixed)	Varies from contract to contract
Valuation	Market to market everyday	No unique method of valuation
Maturity/payment date	Standard (fixed)	Varies from contract to contract
Settlement	Settled through closing out the position prior to maturity	Settled by delivery or through cash
Counterparty	Clearing house	Bank or client
Regulations	Regulated by the exchange concerned	Self-regulated
Trading	Exchange traded	Over the counter i.e. private contract between two parties

Source: Financial Risk Management, IUP and Hull John. C, Options, Futures and other derivatives.

EXHIBIT II

A NOTE ON ANALYZING FUTURES PRICES

The pricing conventions in futures contracts differ from one commodity to another. Grains and oilseed are quoted in terms of cents per bushel, heating oil in terms of dollar per gallon, copper in cents per pound, livestock in cents per pound.

Live Cattle Futures

	SESSION						PRIOR DAY
Month/	OPEN	HIGH	LOW	SETTLE	PT CHNG.	EST VOL	SETTLE	VOL	INT
Strike
3-Apr	75.4	75.85	75.3	75.8	200	5206	75.6	5357	28952
3-May	72.35	73.2	72.3	73.2	375	79	72.825	325	1999
3-Jun	69.95	70.45	69.85	70.375	350	3215	70.025	4292	40838

Feeder Cattle Futures

	SESSION						PRIOR DAY
Month/	OPEN	HIGH	LOW	SETTLE	PT CHNG.	EST VOL	SETTLE	VOL	INT
Strike
3-Apr	77.45	78.2	77.3	78.15	425	467	77.725	528	2744
3-May	77.5	78	77.4	78	325	602	77.675	835	5589
3-Aug	80.95	81.6	80.9	81.5	150	326	81.35	256	3190