B. Futures contracts are standardized; forward contracts are not. ... Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts.
Which of the following is true about a long forward contract?
A long forward contract is an agreement to buy the asset at a predetermined price . ... The contract is only worth zero when the predetermined price in the forward contract equals the current forward price (as it usually does at the beginning of the contract).
Which of the following is not true a futures contracts nearly always last longer than forward contracts?
B. Futures contracts are standardized; forward contracts are not. ... Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts.
What is not a difference between a forward and futures contract?
A forward contract is a private and customizable agreement that settles at the end of the agreement and is traded over-the-counter. A futures contract has standardized terms and is traded on an exchange, where prices are settled on a daily basis until the end of the contract.
How long are most futures contracts?
Futures contracts can be traded purely for profit, as long as the trade is closed before expiration. Many futures contracts expire on the third Friday of the month , but contracts do vary so check the contract specifications of any and all contracts before trading them.
What happens when you sell a futures contract?
The seller of the futures contract (the party with a short position) agrees to sell the underlying commodity to the buyer at expiration at the fixed sales price . As time passes, the contract’s price changes relative to the fixed price at which the trade was initiated. This creates profits or losses for the trader.
Which of the following is not true futures contracts are standardized?
Futures contracts are standardized; forward contracts are not. Delivery or final cash settlement usually takes place with forward contracts; the same is not true of futures contracts. Forward contracts usually have one specified delivery date; futures contract often have a range of delivery dates.
What is a short forward contract?
What Is a Short Date Forward? A short date forward is a forward contract that expires in less than one year . A forward is an obligation involving two parties that agree upon a set price to sell or buy an asset at a pre-determined date and time in the future.
How often are futures margin accounts are adjusted for gains and losses?
In futures contracts margin accounts are adjusted for gains or losses daily .
What right does the holder of a European style put option have?
A European call option gives the owner the right to acquire the underlying security at expiry . For an investor to profit from a call option, the stock’s price, at expiry, has to be trading high enough above the strike price to cover the cost of the option premium.
Why futures contract is better than forward?
It is easy to buy and sell futures on the exchange. It is harder to find a counterparty over-the-counter to trade in forward contracts that are non-standard. The volume of transactions on an exchange is higher than OTC derivatives, so futures contracts tend to be more liquid .
What is the advantage and disadvantage of derivative?
It is considered that derivatives increase the efficiency of financial markets . By using derivative contracts, one can replicate the payoff of the assets. Therefore, the prices of the underlying asset and the associated derivative tend to be in equilibrium to avoid arbitrage.
What is future contract example?
For example, if someone wants to buy a September crude oil futures contract. So they make a futures contract that they will buy 200 barrels of oil from the agreed price as of September expiration whatever the market price at that time. The seller also agrees to sell those 200 barrels of oil at the agreed price.
What happens if you hold a futures contract until expiration?
The futures expiration day is when a futures contract will cease to exist . Holding a contract past this expiration date will trigger obligations for you to purchase the underlying asset. ... Futures do not. Long or short the futures contract into expiry you will be exercised.
How much is a futures contract?
How much does it cost to trade futures? Fees for futures and options on futures are $2.25 per contract , plus exchange and regulatory fees. Note: Exchange fees may vary by exchange and by product. Regulatory fees are assessed by the National Futures Association (NFA) and are currently $0.02 per contract.
Can we exit futures before expiry?
It is not necessary to hold on to a futures contract till its expiry date. In practice, most traders exit their contracts before their expiry dates . ... You can do so by either selling your contract, or purchasing an opposing contract that nullifies the agreement.
