Do not get confused with the word, “future”; it is not your future that we will discuss here. In this article, we will be considering “future trading”, the derivative asset selling, and purchasing.
Future is the term denoted to a contract that is to be sold or purchased at a given period and a stipulated price. The buying and selling are that of underlying assets, which can be a currency, schemes, bonds, funds, etc. These future trading options allow you to exchange your current asset with a new one ensuring that you seek the required benefit out of it.
Now, that we know what futures are, let’s check out the different types of futures-
Types of Futures
• Commodity Future: In this, the hedging of funds gets done against various kinds of commodities like oil, silver, gold, petroleum, etc. The profit margins are high, and the risk of being played by bigger corporations is comparatively low.
• Currency Future: it allows you to sell and purchase at a predetermined rate concerning another currency at a predefined date in the future. The risk of being played by bigger corporations is high, at the same time if the money against which you have sold your first drops in value, your new currency will also lose its value.
• Index Future: These futures are dependent on the Sensex and its daily indexes. The fluctuations in the everyday Sensex indexes determine whether you have made profit or loss. This is a regular bet entirely dependent on the global as well as local market.
• Interest Rate Futures: This is a different type of futures, which allows you to sell or purchase government-approved bonds, and schemes. You can trade these on NSE or the BSE at a predefined price and for a specified time.
Crude Oil Futures
Crude Oil futures are the most crucial futures of them all because they are priced at a high rate globally. The demand for crude oil is significantly high as several countries are dependent on oil imports, and there is a lot of price volatility involved.
These oil futures enable large corporations as well as countries to hedge against such kind of volatility in oil prices. If there is a likelihood of oil prices rising in the future, the price for corresponding oil futures is higher than spot markets. Meanwhile, if there is an expectation of a fall in oil prices, the futures get priced lower than spot markets.
In India, you do it through the Multi Commodity Exchange, and because the crude oil has the feature of liquidity, investors are mostly attracted to this future. The margins you pay here are primarily under 5 per cent of the total futures purchase amount. You can invest easily in these futures as the lot sizes are small (Crude Oil lot size is 100 barrels, while Crude Oil mini size is 10 barrels, with each barrel containing about 162 litres of oil).
Final Word:
There are different types of futures, and oil futures are easily one of the most volatile ones. There is too much price volatility involved, which means if you win a trade here, you will earn big. But, if you lose a business, you will lose big too. So, it is an investment option for investors who can take a big risk to earn big rewards.
