Article

Futures
June 07 , 2012

The simplest transaction is what you do today – for instance paying cash at the Kirana store and buying soap. But there is another type of transaction you can do – just agree with the Kirana owner to buy 10 bars of soap every month at a predetermined price. This is a 'futures' contract.

In general, futures contracts can be on anything – soaps, shares, commodities, interest rates, exchange rates, etc. In India, currently futures contracts are permitted only in shares and commodities. It is in commodities that this is especially valuable. Consider a farmer who expects his crop of one tonne of rice to be ready for harvest in four months. He would want to find a buyer for this rice, and agree on the price and quantity upfront so that he can quit worrying about it later. This is precisely what a futures contract facilitates.

Stock futures in India are traded in the stock market, using the same DP and trading account used for stocks. However, to enable this in your account, you may need to provide an explicit consent and sign some agreements at the time of enrollment. Commodity futures need you to open a separate trading account, though its mode of operation is very similar to stock trading accounts.

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