A Futures Contract is simply the contract to buy or sell an asset in futures at an agreed pre-determined price.

A Futures Contract is simply the contract to buy or sell an asset in futures at an agreed pre-determined price. The assets that we are talking here about may include stocks, bonds, commodities such as crude oil, natural gas, metals, foreign currencies, and other financial market instruments, etc.

Both the buyer and the seller in the futures market are bound by the contracts to deliver what is promised.

Let us understand the basic things which are part and parcel of a futures contract – Contract Size, Contract Value and Initial Margin. Contract size is the minimum number of shares which needs to be bought in a lot. The number of shares multiplied by the futures market size gives us the contract value of that stock. This contract size is determined by the exchange. The margin amount is a certain percentage of the contract value which needs to be maintained in a trading account for someone to enter into a futures contract.

This is also called the initial margin. Let’s look at 2 very important terms used in the futures market. Futures price – It is the price which is paid or received while trading in the Futures Market.

Spot Price – it is the price of the underlying stock which is traded in the cash market.