What is financial future?

What is a financial future?

Futures are derivative financial products. A future is a contract by which the exchange of a specific underlying asset is agreed (securities, indices, agricultural products, raw materials, etc.) on a specific date in the future, at a price agreed to beforehand.

"Long positions" are those that future buyers take: they will have the right to receive the underlying asset upon maturity of the contract (if it is paid in hand). However, the buyer may prefer to close their position in the market before the maturity by carrying out a contrary operation, i.e. selling futures.

The "short position" is that of the future seller, who undertakes to hand over the underlying asset upon maturity (if it is paid in hand), in exchange for the price established in the contract. Likewise, they can undo said position by buying before the maturity.

With future contracts traded in MEFF (Mercado Oficial de Opciones y Futuros Financieros), there is a daily P&L settlement, meaning that MEFF calculates the profit or loss for the customer's position, the result of buying the fixed price in the contract (known as the exercise price), with the market price of the underlying asset from the contract, and makes a payment or charge in the customer's account.

Characteristics of Futures

  • The conditions of the contracts are standardised in terms of their nominal amount, object and maturity date.
  • They are traded on organised markets, so they can be bought or sold at any time during the trading session without having to wait until the maturity date.
  • To both buy and sell futures, the parties must provide market collateral, i.e. an amount- determined according to the open positions they hold- as a sign of compliance with their commitment, so as to avoid the risk of the counterparty.

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