Education Series

Education Series on Derivative Contracts

Trading & settlement:

Trading in Futures contracts can be effected on a daily basis and one can enter into the trading scenario as a buyer or seller through the Futures and Option Terminals of approved stock brokers(Competent Finman Pvt. Ltd. has offered trading facilities in all Derivative products through all its branches)Whether to start as a buyer or seller depends on one's perspective about the value of the underlying asset, in our case the Nifty. If we expect that the market would go up within a time frame, futures contracts on Nifty would be bought and vice versa.

After entering into a futures contract, the trader can keep his position open till the day of settlement, normally the last Thursday of that month or the position could be closed out by effecting an opposite transaction(a sell against a buy and vice versa).So long as the position is open(open position refers to outstanding purchase or sales positions at any point of time),the same will mark to market( MTM, that is, revaluation of the asset on a daily basis)everyday at the daily settlement price, that is, the closing value of the index on that day and the difference will be credited or debited to the trader's account. Thus, the position will be brought forward to the next day at the daily settlement price. On the day of settlement(expiry day) all open contracts for that month will be closed out by the Exchange at the settlement price(Settlement price is the closing value of the asset on the day of settlement/maturity day)