Stock Futures


Stock futures are a contract to buy or sell a specific type of asset at a specified price at a particular time in the future. Specifically, a stock market index future is a cash-settled futures contract on the value of a specific stock market index. The global market for exchange-traded equity index futures was estimated at US$130 trillion by the Bank for International Settlements in 2008.

Single-stock future

Traders can trade single-stock futures out of their futures accounts or securities accounts. A single-stock futures contract can be sold or bought anytime before its expiration.

In general, these contracts are priced at a premium to the stock’s price. However, pricing varies according to supply and demand. These derivatives are particularly popular in the Far East.

A single-stock futures contract is a legally binding agreement between two parties. A buyer and seller agree to exchange shares at a specified price on a specific date in the future. The contract holder must deliver the asset to the seller by the specified date.

When the buyer opens a position in a single-stock futures contract, they must use money as a margin. The amount is typically 20% of the notional value of the underlying stock. If the underlying stock price rises more than the notional value, the investor has to replenish the margin to its original level. This type of derivatives trading requires a great deal of attention to detail.

Index futures

Traders use index futures for several reasons, including hedging stock positions in their portfolios. They can also be used to determine how the market will perform.

The first thing to understand about index futures is that they are a derivative of the underlying asset. So, for example, if the Nifty50 index falls, the underlying value will also decrease. However, it is impossible to predict how the index will move accurately.

Generally, the market will be on the uptrend when a nation’s economy is growing. This is because many stocks tend to move in the same direction. Therefore, it’s a good idea to hedge against any potential losses in your portfolio.

A stock index futures contract is between two parties wherein one party agrees to purchase the other’s shares at a specific price on a specified date. These contracts can be made for one, two, or three months.

Interest rate futures

Buying and selling Interest rate futures is a common way for investors to hedge against rising interest rates. These contracts can be purchased and sold through the National Stock Exchange (NSE) trading members or the Bombay Stock Exchange.

These futures are based on an interest-bearing asset, such as a Treasury bill or a bond. A futures contract will rise in price if the investor believes interest rates will fall, and vice versa.

A buyer will pay a seller the face value of the contract. If the buyer makes a profit, the margin will increase. A loss will reduce the margin. A home loan can be protected with a short-term interest rate futures contract.

Interest rate futures are usually used for hedging purposes but can also be suitable speculative investments. They are available in both short-term and long-term options. In addition, they can be cash-settled or delivered.

Synthetic futures

Until now, synthetic stock futures derivatives have been out of reach to the rest of the defi world. The Injective Protocol has now introduced a decentralized ecosystem allowing traders to borrow and lend out stock futures. Injective users can now participate in various innovative lending opportunities and earn an additional yield on their holdings.

This is a significant shift in the traditional mold of Defi. The financial sector is seeking an unprecedented transformation, and the Injective Protocol is one of the tools facilitating this change. It aims to democratize the financial industry.

The Injective ecosystem comprises layer-2 exchange protocol, Big Data Protocol, and EasyFi Network. These three platforms can create synthetic stock futures, enabling users to lend out and borrow stocks.

Short futures

Traders can buy and sell shares of a company on the futures markets with little capital outlay. Understanding the different risks and opportunities involved in stock futures trading is essential.

When buying or selling shares of a company on the futures market, you must commit to buying or selling the shares at a future date. You will also be required to post the margin. The amount of money you need to post is a fraction of the value of the underlying stock. However, you can lose all of your margins if the price of the underlying shares moves significantly in one direction or the other.

There is a high level of leverage in stock futures trading. This means that you can gain significant profits or lose a lot of money in a short period. It would be best if, you used intelligent stop-loss orders to limit your losses.